S^ 


ill 


^ 


S 


SOUTHERri    DRANQH. 

UNIVERSITY  OF  CALiFORNlA 
LIBRARY 

LOS  ANGELES.  CALJF 


Prt^c  ©conomic  ©eeapg 


THE  CAUSE  AND  EXTENT  OF  THE  RECENT  INDUS- 
TRIAL PROGRESS  OF  GERMANY.    By  Earl  D.  Howard. 

THE  CAUSES  OF  THE  PANIC  OF  1893.  By  William  J. 
Lauck. 

INDUSTRIAL    EDUCATION.     By  Harlow  Stafford  Person, 
Ph.D. 

FEDERAL  REGULATION  OF  RAILWAY  RATES.  By  Al- 
bert N.  Merritt,  Ph.D. 

SHIP  SUBSIDIES.  An  Economic  Study  of  the  Policy  of  Sub- 
sidizing Merchant  Marines.     By  Walter  T.  Dunmore. 

SOCIALISM:  A  CRITICAL  ANALYSIS.     By  O.  D.  Skelton. 

INDUSTRIAL  ACCIDENTS  AND  THEI  R  COM  PENSATION. 
By  Gilbert  L.  Campbell,  B.  S. 

THE  STANDARD  OF  LIVING  AMONG  THE  INDUSTRIAL 
PEOPLE  OF    AMERICA.      By    Frank  H.   Streightoff. 

THE     NAVIGABLE    RHINE.     By  Edwin  J.  Clapp. 

HISTORY  AND  ORGANIZATION  OF  CRIMINAL  STATIS- 
TICS IN  THE  UNITED  STATES.  By  Louis  Newton 
Robinson. 

SOCIAL  VALUE.     By  B.  M.  Anderson,  Jr. 

FREIGHT  CLASSIFICATION.     By  J.  F.  Strombeck. 

WATERV/AYS  VERSUS  RAILWAYS.  By  Harold  Glenn 
Moulton. 

THE  VALUE  OF  ORGANIZED  SPECULATION.  By  Harri- 
son H.  Brace. 

INDUSTRIAL  EDUCATION:  ITS  PROBLEMS,  METHODS 
AND   DANGERS.     By  Albert  H.  Leake. 

THE  UNITED  STATES  I NTERNAL  TAX  HISTORY  FROM 
1861   TO  1871.     By  Harry  Edwin  Smith. 

WELFARE  AS  AN  ECONOMIC  QUANTITY.  By  G.  P.  Wat- 
kins. 

CONCILIATION  AND  ARBITRATION  IN  THE  COAL  IN- 
DUSTRY IN  THE  UNITED  STATES.  By  Arthur  E.  Suf- 
fern. 

THE  CANADIAN  IRON  AND  STEEL  INDUSTRY.  By  W.  J. 
A.  Donald. 

THE  TIN   PLATE  INDUSTRY.     By  D.  E.  Dunbar. 

THE  MEANS  AND  METHODS  OF  AGRICULTURAL  EDU- 
CATION.    By  Albert  H.  Leake. 

THE  TAXATION  OF  LAND  VALUE.     By  Yetta  Scheftel. 

RAILROAD  VALUATION.     By  Homer  Bews  Vanderblue. 

RAILWAY  RATES  AND  THE  CANADIAN  RAILWAY  COM- 
MISSION      By  D.  A.  MacGibbon. 

HOUGHTON   MIFFLIN  COMPANY 
Boston  and  New  York 


l^axt,  ^c^affnet  &  QfUau  ^xx-^t  600^^0 


XXIV 

RAILWAY  RATES  AND  THE   CANADIAN 
RAILWAY  COMMISSION 


RAILWAY  EATES  AND 

THE  CANADIAN  RAILWAY 

COMMISSION 

BY 

D.  A.  MacGIBBON,  Ph.D. 


BOSTON   AND   NEW   YORK 
HOUGHtON  MIFFLIN  COMPANY 

(^ht  &ittt?H>t  ^vt?^  Cambcitige 
1917 


H^^^^Q. 


COPYRIGHT,   I917,   BY  HART,   SCHAFFNER   &  MARX 
ALL   RIGHTS  RESERVED 

Published  December  iqij 


^  HE 


TO 
HUGH  McLean 


^fiBl^jf>^%j9 


This  series  of  books  owes  its  existence  to  the  generosity 
of  Messrs.  Hart,  Schaffner  &  Marx,  of  Chicago,  who  have 
shown  a  special  interest  in  trying  to  draw  the  attention  of 
American  youth  to  the  study  of  economic  and  commercial 
subjects.  For  this  purpose  they  have  delegated  to  the  un- 
dersigned committee  the  task  of  selecting  or  approving  of 
topics,  making  announcements,  and  awarding  prizes  an- 
nually for  those  who  wish  to  compete. 

For  the  year  ending  June  1,  1916,  there  were  offered:  — 

In  Class  A,  which  included  any  American  without  restric- 
tion, a  first  prize  of  $1000,  and  a  second  prize  of  $500. 

In  Class  B,  which  included  any  who  were  at  the  time 
undergraduates  of  an  American  college,  a  first  prize  of  $300, 
and  a  second  prize  of  $200. 

Any  essay  submitted  in  Class  B,  if  deemed  of  sufficient 
merit,  could  receive  a  prize  in  Class  A. 

The  present  volume,  submitted  in  Class  A,  was  awarded 
first  prize  in  that  class. 

J.  Laurence  Laughlin,  Chairman, 
University  oj  Chicago. 

J.  B.  Clark, 

Columbia  University. 

Henry  C.  Adams, 

University  of  Michigan. 

Edwin  F.  Gay, 

Harvard  University. 

Theodore  E.  Burton, 

New  York  City. 


CONTENTS 

INTRODUCTION 

§  1.  Purpose  of  the  study;  influence  of  environmental  conditions 
and  public  policy  on  Canadian  rate  determinations;  the 
scheme  of  treatment xiii 

PAET  I 

BACKGROUND  OF  THE  RATE  PROBLEM 

CHAPTER  I 

THE  DEVELOPMENT  OF  CANADIAN  WATERWAYS 

§  1.  Extent  of  Canadian  waterways;  their  relationship  to  the 

United  States 3 

§  2.  The  St.  Lawrence  route:  to  capture  trade  to  England  and 

the  northeast  seaboard 6 

§  3.  The  Rideau  Canal:  to  give  a  protected  highway  to  Upper 

Canada 11 

§  4.  Results  of  the  canal  policy 12 

CHAPTER  II 
RAILWAY  POLICY  OF  THE  CONFEDERATION  PROVINCES 

§  1.  The  struggle  to  prevent  traflBc  going  to  the  United  States; 
repeal  of  the  Corn  Laws;  development  of  railways  in  the 
United  States 17 

§  2.  The  main  trxmk  line  proposal:  to  provide  a  winter  outlet 
for  Canadian  traflac;  to  provide  safe  means  of  military 
communication  with  the  Maritime  Provinces         .       .       .19 

§  3.  Construction  of  the  Grand  Trunk  Railway;  failure  to 

capture  traflBc 23 

§  4.  The  Intercolonial  Railway 28 

CHAPTER  III 
THE  ERA  OF  TRANSCONTINENTALS 

§  1.  The  Pacific  Railway  project  aims:  the  preemption  of  West- 
ern territory ;  to  connect  British  Columbia  and  the  Dominion    34 


X  CONTENTS 

§  2.  Construction  of  the  Canadian  Pacific  Railway;  controver- 
sies of  1870-80;  the  line  built,  1880-86;  development  since 
1886 37 

§  3.  The  Grand  Trunk  Pacific  Railway;  cause:  Western  Cana- 
dian needs;  railroad  rivalries;  the  retention  of  Western 
Canadian  traffic  through  Canadian  ports;  progress  of 
construction .44 

§  4.  The  Canadian  Northern  Railway;  history  of  beginnings; 

present  position 48 

CHAPTER  IV 
RESULTS  OF  THE  CANADIAN  TRANSPORTATION  POLICY 

§  1.  Railway  nets  in  Eastern  and  Western  Canada;  the  barren 
area  directly  north  of  Lake  Superior;  peculiarities  of  the 
Canadian  Railroad  traflBc  sphere;  waterway  routes;  the 
transcontinental  situation      ........     52 

§  2.  The  Canadian  rate  structure 58  • 

§  3.  The  possibilities  of  efifective  rate  control 69 

CHAPTER  V 
THE  MACHINERY  OF  PUBLIC  CONTROL  OVER  RATES 

§  1.  Railroad  rates  and  the  common  law 72 

§  2.  Control  of  rates  by  charter  provisions 76 

§  3.  Statutory  control  over  rates  79 

§  4.  The  Board  of  Railway  Commissioners;  causes  leading  to 
the  creation  of  the  Board;  scope  and  powers;  position  in 
Canadian  legal  polity 83 


PAET  II 

RATE  REGULATION   AND  THE  BOARD  OF 
RAILWAY  COMMISSIONERS 

CHAPTER  VI 

RATE  THEORIES  DEVELOPED  IN  CONNECTION  WITH 
THE  CHARGE  OF  EXCESSIVE  RATES 

§  1.  Nature  of  complaints  in  respect  to  rates;  three  main  types 
of  appeal:  excessive  rates,  discriminative  rates,  and  rates 
against  public  poUcy 97 


CONTENTS  xi 

§  2.  The  principle  of  fair  return  on  "actual  money  invested"    101 
§  3.  Indirect  criteria  of  reasonableness:  cost  data;  value  of 

commodity 123 

CHAPTER  VII 

RATE  THEORIES  DEVELOPED  IN  CONNECTION  WITH 
THE  CHARGE  OF  UNJUST  DISCRIMINATION 
§  1.  Great  importance  of  this  group  of  decisions    .       .       .       .134 
§  2.  Differences  in  geographical  location;  water  competition    .  136 

§  3.  Competition  between  carriers 154 

§  4.  Competition  for  markets  156 

§  5.  Export  rates 161 

§  6.  Cost  of  service  considerations 163 

§  7.  Value  of  the  commodity 194 

CHAPTER  VIII 
RATE  THEORIES  AND  PUBLIC  POLICY 

§1.  Rates  to  develop  industries 201 

§  2.  Rates  to  protect  industry 213 

§  3.  Rates  to  protect  traffic 216 

§  i.  Minor  aspects  of  the  Board's  decisions:  precedents,  inter- 
national rates,  rehearings 226 

CHAPTER  IX 
CONCLUSION 

§  1.  The  fundamental  importance  of  the  principle  of  protection 

to  investment 235 

§  2.  Absence  of  large  and  effective  control  over  discrimination  237 

BIBLIOGRAPHICAL  NOTE 241 

LIST  OF  CASES   CITED 249 

INDEX 259 


INTRODUCTION 

In  the  following  pages  an  attempt  will  be  made  to  ex- 
hibit the  guiding  principles  in  the  rate  decisions  of  the 
Board  of  Railway  Commissioners  for  Canada.  The  aim 
will  be  to  show  to  what  degree  these  principles  have  grown 
naturally  out  of  the  historical  and  physical  environment 
rather  than  to  base  the  study  solely  upon  the  decisions. 
With  this  purpose  in  view  the  study  will  attempt,  there- 
fore, to  trace  the  controlling  considerations  lying  behind 
the  development  of  Canadian  systems  of  transportation 
for  the  light  it  is  believed  this  will  throw  upon  the  prob- 
lems which  have  faced  the  Board;  to  point  out  unique 
features  of  the  Canadian  traffic  situation;  to  show  the 
gradual  development  of  means  of  public  control;  and, 
finally,  on  the  basis  of  this  survey,  to  exhibit,  interpret, 
and  value  the  body  of  rate  principles  which  the  Board  has 
developed  in  the  twelve  years  of  its  existence. 

The  position  taken  is  that  political  and  geographical 
factors  have  been  the  direct  vital  forces  in  shaping  the 
development  of  the  transportation  systems  of  Canada. 
This  conclusion  explains,  it  will  be  shown,  the  peculiar  con- 
dition that  the  rates  of  eastern  Canada  are  very  largely 
compelled  rates  in  the  sense  that  they  are  based  on  factors 
outside  the  scope  of  regulative  control.  Further,  this  view 
reveals  reasons  for  the'  complaints  of  western  Canadian 
shippers  that  rates  in  that  part  of  the  Dominion  are  un- 
duly high  and  for  the  inability  of  the  Board  to  grant  any 
substantial  measure  of  relief,  or,  indeed,  to  exert  any 
markedly  decisive  influence  on  rates  in  general.  It  is  be- 
lieved that  the  evidence  adduced  will  establish  the  sound- 
ness of  this  contention. 

The  review  of  Canadian  transportation  development, 


xiv  INTRODUCTION 

preliminary  to  the  examination  of  the  rate  decisions,  in- 
cludes a  brief  history  of  the  development  of  Canadian 
canals,  of  the  construction  of  a  main  trunk  railway  line 
through  Ontario  and  Quebec,  and,  later  on,  of  the  Inter- 
colonial line  to  the  Maritime  Provinces.  The  construction 
of  these  lines,  it  may  be  noted,  completed  the  building  of 
the  principal  avenues  of  communication  between  the  older 
Provinces  of  the  Dominion.  This  is  followed  by  similar 
consideration  of  the  circumstances  surrounding  the  in- 
ception and  building  of  the  transcontinental  railways. 
With  the  exception  of  the  Canadian  Pacific  Railway,  how- 
ever, these  lines  are  not  yet  wholly  out  of  the  constructive 
stage,  but  the  history  of  their  progress  is  brought  down  to 
date  so  far  as  possible. 

Finally,  concluding  this  portion  of  the  study,  a  general 
survey  of  the  whole  transportation  situation  in  Canada  is 
made.  Attention  is  devoted  to  the  peculiar  shape  of  the 
area  within  the  sphere  of  railway  operations  in  Canada, 
and  particularly  to  the  significance,  from  a  traflSc  stand- 
point, of  the  great,  partly  infertile,  partly  unexploited, 
territories  which  form  a  vast  salient  northwards  to  Hud- 
son's Bay  from  Lake  Superior  and  Lake  Huron,  a  salient 
between  the  traSic  regions  of  eastern  and  western  Canada. 

The  political  currents  behind  this  policy  of  expanding 
means  of  communication  might  have  been  treated  as  a 
topic  by  itself.  Their  importance  would  easily  warrant 
such  treatment.  It  has  been  felt,  however,  that  they 
would  more  naturally  and  clearly  reveal  themselves  if  in- 
dicated in  connection  with  the  events  which  they  help  to 
explain.  This  has  been  the  method  followed  here.  The 
endeavor  has  been  to  weave  together,  in  an  interpretative 
way,  the  various  elements  that  account  in  each  instance 
for  the  successive  steps  forward  in  Canada's  development 
of  systems  of  communication. 

With  this  background  the  rise  and  augmentation  of 
means  of  public  control,  in  so  far  as  it  affects  rates  for  the 


INTRODUCTION  xv 

carriage  of  goods,  is  traced  up  to  and  including  the  crea- 
tion of  the  Board  of  Railway  Commissioners.  The  gen- 
eral powers  of  the  Board  are  outlined.  With  a  view  to 
giving  a  correct  impression  as  to  its  place  in  the  legal  pol- 
ity of  the  Dominion,  the  general  scope  of  its  activities  is 
noted,  as  well  as  its  relationship  to  the  courts  of  higher 
appeal  and  to  the  Privy  Council. 

The  larger  and  latter  part  of  the  study  is  concerned  with 
a  detailed  examination  of  the  rate  decisions  of  the  Board. 
From  these  the  conclusion  has  been  drawn  that  the  prin- 
ciples of  rate-making  that  it  has  followed  flow  in  the  main 
out  of  the  conditions  produced  by  the  course  of  Canadian 
transportation  history  combined  with  the  natural  peculi- 
arities of  the  Canadian  situation.  Investigation  reveals 
that  the  complaints  the  Board  has  had  to  deal  with  fall 
chiefly  into  two  groups,  those  relating  to  excessive  rates 
and  those  relating  to  unjust  discrimination.  The  method 
pursued  is  to  examine  the  principles  that  the  Board  has 
recognized  as  controlling  in  disposing,  in  each  instance,  of 
the  complaints  that  have  come  before  it.  To  this  is  added 
some  consideration  of  cases  based  on  larger  phases  of  pub- 
lic policy,  though  the  relative  absence  of  cases  of  this  na- 
ture is  not  the  least  significant  feature  in  the  whole  situa- 
tion. There  are  also  considered  some  minor  aspects  of  the 
Board's  practice.  The  main  conclusions  have  not  been 
sought  for,  but  have  developed  naturally  as  a  result  of  the 
whole  investigation. 


RAILWAY  RATES  AND  THE 
CANADIAN  RAILWAY  COMMISSION 

PART  I 
BACKGROUND  OF  THE  RATE  PROBLEM 


RAILWAY  RATES  AND  THE 
CANADIAN  RAILWAY  COMMISSION 

CHAPTER  I 

THE  DEVELOPMENT  OF   CANADIAN  WATERWAYS 

§  1.  No  powers  of  acute  observation  are  required  to 
discover  the  immense  importance  of  water  transportation 
in  the  Dominion  of  Canada.  The  eariiest  discoverers  of 
the  Maritime  Provinces  were  quick  to  perceive  the  signifi- 
cance of  their  deeply  serrated  coasts,  their  large  bays  and 
secure  harbors.  With  Prince  Edward  Island,  completely 
surrounded  by  water;  with  Nova  Scotia,  a  peninsula;  with 
New  Brunswick  bounded  by  water  on  the  larger  part  of 
three  sides,  it  is  no  accident  that  all  the  leading  towns  and 
cities  of  these  Provinces  have  developed  at  points  where 
the  advantages  of  water-borne  traffic  are  enjoyed,  and 
where  as  a  result  railway  tolls  have  been  largely  affected 
by  maritime  competition. 

Yet  the  Maritime  Provinces  of  Canada  possess  no 
monopoly  of  waterways.  Virtually  the  whole  of  the  set- 
tled portions  of  Quebec  and  Ontario  lie  within  the  drainage 
basin  of  a  single  river,  the  River  St.  Lawrence.  From  the 
head  of  Lake  Superior  water  moves  by  degrees,  in  the 
main  through  navigable  channels,  over  two  thousand  miles 
in  its  course  to  tidewater.^  Emptying  into  the  main  chan- 

*  From  Fort  William  to  the  mouth  of  the  St.  Lawrence  is  2384  miles. 
Montreal  is  986  miles  inland,  100  miles  above  tidewater.  From  a  volume 
prepared  under  the  direction  of  the  Honorable  Sydney  Fisher,  Canada, 
Its  History,  Production,  and  Natural  Resources. 

The  difference  between  tidewater  and  Lake  Superior  is  602  feet.  Can- 
ada Statistical  Year  Book  (1895),  p.  669. 


4  CANADIAN  RAILWAY  RATES 

nel  at  several  points  along  the  way  tributary  streams, 
deep  enough  to  permit,  and  long  enough  to  invite,  navi- 
gation, swell  the  volume  of  water  that  flows  eastward  and 
provide  subsidiary  routes.  The  importance  of  the  River 
St.  Lawrence,  the  GuK  of  St.  Lawrence,  and  the  Great 
Lakes,  as  a  system  of  navigable  waters,  has  long  been  rec- 
ognized.^ Time  need  not  be  taken  upon  elaborating  a 
fact  so  obvious. 

One  element  here,  however,  merits  some  notice  because 
of  the  practical  bearing  it  has  upon  the  scope  of  rate  regu- 
lation in  Canada.  This  great  waterway  system  does  not 
lie  wholly  within  the  control  of  the  Dominion.  The  Great 
Lakes  and  connecting  rivers  are  boundary  waters  between 
Canada  and  the  United  States.  Similarly,  the  River  St. 
Lawrence  for  many  miles  of  its  course  is  an  international 
stream.  In  consequence  the  advantages  of  this  avenue  of 
transportation,  and,  of  more  importance,  the  possibilities 
of  effective  regulation  and  control,  do  not  belong  exclu- 
sively to  Canada,  but  are  shared  with  a  foreign  country. 
It  is  necessary,  however,  to  remember  in  this  connection 
that  the  balance  of  convenience  in  its  use  lies  with  Canada. 
Where  the  St.  Lawrence  attains  a  depth  that  permits  navi- 
gation by  the  larger  ocean  liners  it  is  well  within  Canadian 
territory.  Its  maritime  ports,  Montreal  and  Quebec,  are 
Canadian  cities,  and  as  such  Montreal,  particularly,  com- 
petes with  New  York,  an  American  rival,  for  the  commerce 
of  western  Canada  and  of  the  Middle  States. 

The  rivalry  of  these  two  cities  for  shipping,  beginning 
almost  a  century  ago,  more  acute  perhaps  in  the  past  than 
in  the  present,  is  the  opening  chapter  in  a  phase  of  na- 
tional policy  which  has  continued  down  to  the  present  time 
and  which  has  profoundly  affected  the  transportation  ar- 
rangements of  the  Canadian  Provinces.  For  since  Mon- 

^  "No  country  under  heaven  is  so  completely  adapted  for  internal 
navigation."  By  a  Backwoodsman,  Statistical  Sketches  of  Upper  Canada, 
p.  58. 


devi:lopment  of  Canadian  waterways    5 

treal  is  nearer  to  Europe  than  New  York,  it  was  believed 
for  many  a  day  that  the  relatively  shorter  distance  alone 
would  enable  the  Canadian  city  to  capture  much  of  the 
traffic  and  therefore  the  trade  of  the  Western  States.^ 
To  capture  this  traffic  was  put  forward  as  a  national  duty 
by  interested  parties,  who  employed  all  the  usual  devices 
to  propagate  the  idea  that  Canadian  supremacy  was  pos- 
sible in  this  field.  The  task  of  convincing  Canadians  was 
not  very  difficult.  This  was  natural,  for  it  was  generally 
felt  that  the  prosperity  of  the  Canadian  carrying  trade 
with  its  collateral  interests  would  inure  to  the  prosperity 
of  all  Canada.  It  must  be  remembered  that  at  this  time 
Canada  was  just  a  slim  country  strung  out  along  the  lines 
of  her  waterways,  that  wooden  ships  were  still  in  use,  and 
that  their  prosperity  affected  the  important  colonial  in- 
dustry of  lumbering.  These  reasons  disposed  people  to 
look  favorably  upon  schemes  to  improve  shipping.  The 
idea  of  controlling  the  carrying  trade  of  a  large  portion  of 
North  America,  therefore,  obtained  ready  reception  in  the 
colonial  imagination  and  easily  grew  into  a  national  ideal 
toward  which  statesmen  bent  their  efforts.  This  ideal  — 
to  grasp  and  to  hold  the  trade  of  the  American  West,  not 
only  the  carrying  trade,  but  the  commerce  of  the  West  as 
a  pendant  thereto  —  is  the  key  that  opens  up  and  makes 

*  "We  possess  in  Canada  an  undoubted  and  preeminent  superiority 
in  controlling  and  directing  the  productive  industry  of  the  western  terri- 
tories. .  .  .  The  master  key  of  the  lake  region  is  not  theirs."  By  a  Pro- 
jector, A  Concise  View  of  the  Inland  Navigation  of  the  Canadian  Provinces, 
etc.,  p.  5. 

"So  long  indeed  as  the  St.  Lawrence  flows  to  the  sea,  so  long  will  the 
tide  of  commerce  fall  into  and  follow  its  natural  declivity."  William  F. 
Coffin,  The  Canal  and  the  Rail,  p.  3. 

"The  produce  of  western  Canada,  and  of  the  northern  parts  of  Ohio, 
Illinois,  Indiana,  and  Michigan  must  find  an  outlet  either  by  way  of  the 
Erie  Canal  or  by  the  St.  Lawrence  to  the  ocean."  The  Economist  (Lon- 
don), September  12,  1846. 

"They  [canals]  are  as  essential  to  the  western  states  as  to  ourselves. 
The  natural  route  to  New  York  and  Boston  is  by  them."  William  Kings- 
ford,  C.E.,  The  Canadian  Canals,  p.  12. 


0  CANADIAN  RAILWAY  RATES 

intelligible  a  large  part  of  the  canal  and  railway  legislation 
and  construction  up  to  the  union  of  the  Provinces  in  1867. 
Less  obvious  in  its  workings,  but  more  comprehensive  in 
its  design,  than  in  the  pre-Confederation  period,  this  ideal 
has  continued  to  influence  the  policy  of  the  Dominion  in 
the  construction  of  transcontinental  lines  of  a  later  era. 
Those  things  that  the  attempts  to  realize  this  ideal  do 
not  explain  in  Canadian  transportation  history,  it  will  be 
shown,  are  largely  explicable  on  the  related  basis  of  military 
expediency  and  national  completeness.  To  the  inception 
and  early  growth  of  transportation  facilities  we  now  turn. 
§  2.  Apparently  the  struggle  for  trade  supremacy  did 
not  actually  become  overt  until  nearly  as  late  as  1825.^ 
The  causes  may  be  briefly  set  forth.  The  War  of  1812-14 
revealed  to  the  Imperial  Government  the  imperative  neces- 
sity of  having  available  safe  routes  within  and  between  the 
various  colonies  in  British  North  America  by  both  land 
and  water.2  The  development  of  western  Ontario  was 
taking  place  rapidly  through  the  energetic  efforts  of  Gov- 
ernor Simcoe,  Colonel  Talbot,  and  other  pioneers.  A  chal- 
lenge to  what  was  believed  to  be  the  "natural  route  " '  was 
rightly  apprehended  in  the  construction  of  the  Erie  Canal 
for  the  purposes  of  conveying  traffic  from  Lake  Erie  to 
New  York.'*  The  richness  of  the  opportunity  for  trade  on 

*  The  Ontario  peninsula  was  scarcely  developed  sirfficiently.  The 
United  Empire  Loyalist  influx  followed  the  defeat  of  the  British  in  the 
United  States. 

*  This  appears  in  connection  with  the  Rideau  Canal. 

'  "The  United  States  Government,  as  well  as  some  of  its  Common- 
wealths, are  at  this  day  busily  engaged,  not  only  in  forming,  but  also  in 
executing,  plans,  by  which  the  trade  of  a  great  part  of  the  Canadas,  and 
all  of  the  Northwest  country  may  be  diverted  from  its  natural  course, 
the  valley  of  the  St.  Lawrence  by  Montreal  and  Quebec,  and  transferred 
to  the  Hudson  and  Mississippi  by  New  York  and  New  Orleans."  William 
L.  Mackenzie,  The  Colonial  Advocate,  September  27,  1824.  Cp.  Henry 
Bliss,  Statistics  of  the  Trade  of  Canada,  etc.,  etc.,  p.  128.  See  also  Proceed- 
ings of  a  Committee  appointed  at  Brockville  the  Tenth  of  November,  1830, 
on  the  Improvement  of  the  St.  Laimence. 

*  The  Erie  Canal  was  begun  in  1817  and  completed  in  1825. 


DEVELOPMENT  OF  CANADIAN  WATERWAYS     7 

account  of  the  surprising  growth  of  the  Middle  Western 
States  was  rapidly  increasing.^  All  of  these  factors  con- 
spired to  focus  the  attention  of  Canadians  upon  the  St. 
Lawrence  route.  The  advantages  of  this  route  were  glow- 
ingly portrayed  to  them  as  a  national  asset  the  develop- 
ment of  which  would  not  only  hasten  the  settlement  and 
exploitation  of  their  own  rich  possessions  in  what  is  now 
the  Province  of  Ontario,  but  would  also,  levying  upon  the 
prosperity  of  their  American  neighbors,  make  the  Ameri- 
can Northwest  tributary  to  Canadian  cities  and  seaports. 
Hence,  behind  all  movements  to  deepen  and  otherwise 
improve  the  St.  Lawrence  route,  beyond  the  hope  of  direct 
reward,  lay  this  ambitious  scheme  of  national  economic 
aggrandizement . 

There  is  evidence  that  until  1800  the  traffic  on  the 
St.  Lawrence  was  comparatively  light,  being  conveyed 
chiefly  by  batteau,  Durham  boat,  or  lumber  raft.^  Before 
that  time  only  two  or  three  shallow  canals  on  the  St,  Law- 
rence, later  abandoned,^  expedited  transportation  between 
the  western  Ontario  peninsula  and  Montreal.  The  up 
voyage  entailed  frequent  portages  and  the  journey  was 
correspondingly  long,  tedious,*  and  expensive.^    Natur- 

^  I  have  not  been  able  to  verify  Trout's  statement  that  in  1795  the 
traffic  over  the  portage  around  Niagara  Falls  was  sixty  wagons  a  day. 
J.  M.  and  Edward  Trout,  The  Railways  of  Canada,  etc.,  p.  22.  Cp.  James 
Duncan,  The  Canadas  as  They  Now  Are,  p.  71. 

2  Isaac  Weld,  Voyage  au  Canada,  vol.  u,  p.  213  ff. 

'  Canadiana,  vol.  xi,  p.  4. 

*  Weld,  op.  cit,  p.  55. 

^  "The  cost  of  carrying  goods  between  Montreal  and  Kingston  be- 
fore the  Rideau  or  St.  Lawrence  canals  seems  to  this  generation  incred- 
ible, and  is  worthy  of  belief  only  because  it  is  stated  on  unimpeachable 
authority.  Sir  J.  Murray  stated  in  the  House  of  Commons  September 
6,  1828,  that  on  a  former  occasion  the  carriage  of  a  twenty-four-pound 
cannon  cost  between  £150  and  £200,  and  that  a  76-cwt.  anchor  £676  and 
that  when  the  imperial  goverrmient  sent  out  two  vessels  in  frames,  one 
of  them,  a  brig,  cost  the  country  in  carriage  the  short  distance  between 
these  two  cities  the  enormous  sum  of  £30,000."  Trout,  op.  cit.,  p.  19. 
(While  undoubtedly  carriage  was  expensive,  these  rates  were  probably 
war  rates.) 


8  CANADIAN  RAILWAY  RATES 

ally  the  first  attempt  of  importance,  in  the  period  that  fol- 
lowed, to  overcome  the  difficulties  of  the  route  occurred 
in  connection  with  the  greatest  of  these  difficulties,  Niag- 
ara Falls,  an  obstacle  sufficiently  great  to  delay  the  most 
resourceful  navigator. 

The  increasing  volume  of  freight  that  was  compelled  to 
break  shipment  at  this  point,  involving  vexatious  delay, 
of  itself  with  growing  insistence  emphasized  the  desira- 
bility of  a  canal.  Yet,  while  the  advantages  of  more  con- 
venient passage  between  Lake  Erie  and  Lake  Ontario  were 
becoming  more  obvious  every  day  and  in  time  certainly 
would  have  been  sufficient  to  induce  the  construction  of  a 
canal,  there  is  no  reasonable  doubt  that  the  approaching 
completion  of  the  Erie  Canal  hastened  the  event.  For  the 
latter  clearly  threatened  to  divert  a  large  part  of  the  west- 
ern traffic  via  Albany  and  the  Hudson  to  the  port  of  New 
York.  If  this  diversion  were  successfully  accomplished,  it 
meant,  of  course,  that  the  ambitious  plans  to  capture  this 
rich  and  extensive  trade  would  be  forestalled  before  they 
were  mature  or  even  partially  realized.  To  meet  this  in- 
vasion, so  upsetting  to  the  preconceived  notions  of  the 
people  of  Canada  as  to  the  necessity  of  the  Western  States 
finding  an  outlet  to  the  sea  by  the  St.  Lawrence,  there  was 
begun  a  series  of  improvements  upon  that  traffic  route  that 
has  continued,  almost  without  let,  down  to  the  present 
day. 

Of  these  improvements  easily  the  first  in  order  of  im- 
portance is  the  Welland  Canal.^  This  was  begun  in  1823, 
two  years  before  the  completion  of  the  Erie,  and  finished 
some  time  after  the  latter.  It  was  followed  by  a  series  of 
short  canals  ^  along  the  St.  Lawrence  designed  to  obviate 

*  William  Hamilton  Merritt,  Brief  Review  of  the  Origin,  Progress,  Pres- 
ent State  and  Future  Prosperity  of  the  Welland  Canal. 

^  The  Lachine  Canal  was  opened  in  1825;  the  Welland,  partially  in 
1829,  wholly  in  1832,  enlarged  in  1841  and  in  1859-66;  the  Beauharnois 
Canal,  in  1845;  the  Cornwall  Canal  in  1843;  Williamsburg,  etc.,  in  1847; 
Sault  Ste.  Marie,  in  1895;  Soulanges,  in  1899. 


DEVELOPMENT  OF  CANADIAN  WATERWAYS     9 

the  difficulties  of  the  channel,  particularly  on  the  up  voy- 
age. This  it  was  believed  would  effectually  establish  the 
primacy  of  the  route  against  the  Erie.  There  can  be  no 
doubt  that  this  was  the  main  purpose  of  these  improve- 
ments. The  Canadian  people  believed  in  their  route,  be- 
lieved in  its  inherent  superiority  ^  over  its  American  rival. 
On  the  basis  of  its  directness,  the  greater  depth  of  channel 
afforded,  the  shortened  distance  from  the  West  and  from 
Montreal  to  Liverpool,  and  the  longer  St.  Lawrence  sea- 
son, quite  early  in  the  history  of  the  route  they  boasted  ^ 
that  they  had  the  "easiest,  shortest,  and  cheapest  chan- 
nel to  the  sea." 

I  Like  the  completion  of  the  Erie  Canal  the  completion  of 
the  Welland  was  a  notable  event  in  the  history  of  freer 
traffic  facilities  and  intercommunication.  It  provided  a 
navigable  channel  around  the  greatest  and  only  absolutely 
impassable  obstacle  in  the  whole  related  chain  of  lakes  and 
rivers.  It  thus  enormously  extended  the  area  of  territory 
capable  of  being  served  by  the  St.  Lawrence  ports.  We 
must  remember  that  the  Welland  Canal  was  opened  be- 
fore railroads  appeared  as  active  factors  in  the  convey- 
ance of  goods  and  passengers.  With  its  completion  Cana- 
dians possessed  an  easy,  safe,  and  relatively  cheap  avenue 
of  intercourse  between  the  Western  States  and  their  chief 
cities.  This  advantage,  in  itself  no  small  matter,  was  en- 
hanced by  the  fact  that  the  operation  of  the  Navigation 
Laws  made  it  an  exclusive  advantage,  for  they  restricted 
the  use  of  Canadian  canals  to  Canadian  vessels.^     The 

*  Hon.  Francis  Hincks,  M.P.,  Canada,  its  Financial  Position  and  Re- 
sources, p.  5.  Cp.  Bliss,  op.  cit.,  p.  133. 

"Examination  convinces  them  that  with  the  St.  Lawrence  as  a  high- 
way and  Portland  as  an  outlet  to  the  sea,  we  shall  be  enabled  successfully 
to  struggle  for  the  mighty  trade  of  the  west,  and  bid  defiance  to  compe- 
tition on  the  more  artificial  route  of  the  Erie  Canal."  Sir  Richard  Henry 
Bonnycastle,  Canada  and  the  Canadians,  vol.  ii,  p.  292.  (The  author  is 
quoting  from  a  pamphlet  of  the  Free  Trade  Association  of  Montreal.) 

^  See  Bliss,  Coffin,  op.  cit.  The  whole  literature  of  the  period  is  full  of 
this  confidence. 

'  These  restrictions  were  removed  in  1849, 12  &  13  Vic,  c.  29. 


10  CANADIAN  RAILWAY  RATES 

practical  result,  therefore,  was  that  American  towns  on  the 
south  shore  of  Lake  Ontario  or  of  the  St.  Lawrence,  which 
wished  to  engage  in  the  profitable  Western  trade,  must 
needs  employ  Canadian  vessels.  The  whole  interlake  as 
well  as  the  export  carrying  trade  seemed  securely  in  the 
hands  of  shipping  interests  located  on  the  Canadian  side 
of  the  boundary.  With  regard  to  the  export  trade,  how- 
ever, Canadians  had  yet  to  learn  that  excellent  inland 
communications  alone  were  not  sufficient  to  turn  the  scale 
in  favor  of  one  route  over  another.  As  Keefer  points  out, 
"Both  Upper  Canada  and  Lower  Canada  were  under  the 
delusion  that  equal  facilities  in  the  shape  of  artificial  navi- 
gation would  give  the  St.  Lawrence  with  its  short  canals 
the  advantage  over  the  Hudson  with  its  long  ones."  ^  They 
imderrated  the  influence  of  low  ocean  rates,  a  factor  which 
presently  entered  into  the  competitive  situation  and  which 
to  some  degree  had  been  overlooked  by  Canadian  interests. 
The  construction  of  canals  along  the  Richelieu  River 
exhibits  an  extension  of  this  struggle  between  routes.  If 
Canada  hoped  to  dominate  in  the  carrying  trade  between 
the  Eastern  and  Western  States,  she  must  find  a  way  for 
traffic  to  pass  easily  between  New  England  and  the  St. 
Lawrence.  This  would  finally  cut  the  trade  away  from  the 
towns  on  the  southern  shores  of  Lake  Ontario  and  the  St. 
Lawrence  and  make  Canadian  ports  the  gateway  cities 
to  the  West.  Nature  had  already  provided  the  possibility 
of  an  easy  avenue  of  communication.  The  Richeheu 
River,  flowing  from  Lake  Champlain  to  the  St.  Lawrence 
just  below  Montreal,  except  at  a  few  pomts  was  a  navi- 
gable stream  and  its  use  antedated  the  loss  of  the  thirteen 
colonies.  It  was  now  determined  to  make  it  completely 
navigable  by  the  construction  of  canals  and  locks  where 
necessary.  Accordingly,  the  next  step  to  be  noted  is  the 
construction  of  the  Chambly  Canal,  which  was  begun  in 

^  T.  C.  Keefer.  C.E.,  Eighty  Years'  Progress  of  British  North  America, 
p.  179. 


DEVELOPMENT  OF  CANADIAN  WATERWAYS    11 

1843,^  and  later  of  the  St.  Ours.  These  two  short  canals 
provided  the  necessary  easy  access  to  Lake  Champlain. 
From  Lake  Champlain  by  the  Hudson  the  way  was  open 
to  New  York,  which  would  be  the  destination  of  much 
Western  traflSc  and  the  source  of  return  cargoes.  With 
this  link  complete,  Canada  was  in  a  position  seriously  to 
bid  not  only  for  export  business,  but  for  interstate  Ameri- 
can trade.  The  completion  of  these  canals,  accordingly, 
marks  the  close  of  an  era.  It  marks  the  conclusion  of 
Canada's  first  attempt  to  bring  the  carriage  of  through 
East  and  West  traflBc  under  Canadian  control. 

§  3.  W^ile  military  rather  than  commercial  considera- 
tions account  for  the  construction  of  the  Rideau  Canal,  it 
deserves  mention  here.  This  cross-country  canal,  between 
Kingston  and  Ottawa,  connects  Lake  Ontario  and  the 
Ottawa  River,  and  was  built  after  the  War  of  1812-15  by 
the  Imperial  Government.  The  latter  sought  to  provide 
a  safe  route  from  Montreal  to  Kingston  for  the  transpor- 
tation of  supplies  and  the  military  in  case  of  another  war 
with  the  United  States.  Events  had  shown  that  the  St. 
Lawrence  could  not  be  relied  upon,  as  it  came  almost  im- 
mediately within  the  war  zone.^  It  need  scarcely  be 
pointed  out  that  Kingston  at  that  time  was  relatively  a 
much  more  important  city  in  the  life  of  Canada  than  it  is 
to-day,  and  it  was  eminently  desirable  in  case  of  a  naval 
defeat  upon  the  Lakes,  as  well  as  from  the  standpoint 
of  uninterrupted  communications,  that  there  should  be 
some  Lake  port  with  a  safe  line  of  retreat  in  the  rear.  The 
building  of  the  Rideau  Canal  involved  as  a  necessary  ad- 
junct the  construction  of  locks  and  canals  along  the  Ottawa 
River  between  Ottawa  and  Montreal  to  make  possible  a 
complete  utilization  of  the  route.   There  thus  came  into 

1  The  authorization  was  given  earlier:  3  Geo.  IV,  c.  41  (1823);  2  Vic, 
c.  61  (1839);  3  Vic,  c  20  (1840). 

^  The  Rideau  Canal  was  built  by  the  Imperial  Government  because 
it  desired  to  retain  complete  control  over  it  in  case  of  war.  Keefer,  op. 
dt..  p.  154  ff. 


12  CANADIAN  RAILWAY  RATES 

being  a  secondary  and  alternative  route  from  Montreal  to 
the  foot  of  the  Lakes.  Incidentally  the  range  of  waterway 
transportation  was  considerably  extended,  no  small  boon 
at  this  period,  though  the  advantages  were  chiefly  to  be 
reckoned  in  terms  of  local  traflSc. 

§  4.  The  canal  systems  of  Canada  were  in  a  great  meas- 
ure complete  by  1846.^  Channels  have  been  deepened, 
locks  have  been  lengthened,  further  links  added  by  a  num- 
ber of  short  canals  having  been  constructed;  but  with  one 
exception  ^  these  additions  and  improvements  have  had 
to  do  with  existing  systems,  amplifying  them  and  extend- 
ing the  range  of  their  service.  Consequently  the  time  has 
come  when  the  results  of  this  policy,  not  only  in  the  light 
of  the  conditions  that  obtained  when  it  was  inaugurated 
and  carried  to  practical  issue,  but  with  regard  to  the  effec- 
tive influence  that  these  canals  exert  to-day,  may  be  con- 
veniently discussed.  In  the  first  place,  it  is  clear  that  the 
period  between  1820  and  1846,  the  time  of  activity  in 
canal  construction,  coincides  with  a  great  development 
of  commerce  and  navigation  on  the  Great  Lakes. ^  Lake 
shipping  achieved,  perhaps,  its  highest  point  of  impor- 
tance (though  not  necessarily  its  greatest  development) 
at  that  time,  while  the  St.  Lawrence,  with  the  Erie  and 
Welland  Canals,  provided  the  essential  links  between  East 
and  West.  As  against  the  competition  of  the  Erie  the 
Canadian  design  of  capturing  the  major  portion  of  this 
trade  seemed  within  some  degree  of  realization.  The  traf- 
fic upon  the  St.  Lawrence,  in  spite  of  the  competition  of 
the  rival  route,  was  doubling  every  four  years.*  Trade 
conditions  in  Canada  in  the  forties  were  highly  satisfac- 
tory.  Canadians,  not  content  with  diverting  traffic  from 

*  The  Rideau  Canal  was  opened  in  1832. 

^  St.  Peter's  Canal,  in  Cape  Breton,  was  opened  in  1869. 

'  James  CroU,  Steam  Navigation  and  its  Relation  to  the  Commerce  of 
Canada  and  the  United  States  (Toronto,  1898),  p.  252  ff .  Cp. "  Lake  Erie  ap- 
pears like  a  frequented  track  on  the  highway  of  waters."   Martin,  loc.  cit. 

*  J.  Sheridan  Hogan,  Canada,  p.  24. 


DEVELOPMENT  OF  CANADIAN  WATERWAYS    13 

the  earlier  opened  Erie  route,  looked  forward  with  assur- 
ance to  the  complete  achievement  of  their  aims  in  a  virtual 
monopoly  of  the  trade.  This  seemed  the  more  certain  for 
the  privileged  position  that  Canada  occupied  in  the  mar- 
kets of  Great  Britain  before  the  repeal  of  the  Corn  Laws 
concealed  the  disabilities  of  the  St.  Lawrence  sea  route: 
the  higher  freight  rates  from  Canadian  ports  were  more 
than  counterbalanced  by  the  preferential  colonial  duties. 
There  is  no  question  that  the  waterway  system  of  Canada 
at  this  time  procured  a  remarkable  degree  of  prosperity  to 
a  large  and  important  element  in  the  commercial  life  of  the 
country.  In  point  of  fact,  though,  it  is  diflScult  to  deter- 
mine how  much  diversion  of  trade  actually  took  place. 
Some,  no  doubt,  took  place,  but  the  true  significance  of 
the  situation  seems  to  be  that  the  development  of  the 
Middle  West  was  so  rapid  that  it  placed  heavy  burdens  on 
all  available  transportation  facilities  to  the  East.  For  our 
purpose  the  more  important  fact  to  notice  is  that  at  this 
period  the  great  expenditures  ^  which  had  been  incurred  in 
improving  Canadian  waterways  seemed  to  have  been 
viewed  as  justified  in  the  light  of  their  results.  Canadians 
were  therefore  confirmed  in  their  belief  that  they  pos- 
sessed a  route  inherently  superior  to  that  possessed  by  the 
United  States. 

Let  us  turn  now  to  the  efiFect  of  this  legacy  of  transpor- 
tation facilities  upon  Canadian  traflBc  problems  of  to-day. 
In  the  first  place,  it  is  to  be  observed  that  the  canal  sys- 
tems of  Canada,  in  the  main,  have  made  for  a  fuller  utiliza- 
tion of  vast  stretches  of  preexisting  waterways.  A  canal 
mileage  of  one  hundred  and  eighteen  miles  connects  and 
makes  available  for  continuous  voyage  nearly  sixteen  hun- 
dred miles  of  lake  and  river.^  This  widely  extended  system 

»  Before  Confederation  in  1867.  $20,593,866.  Total  capital  expendi- 
ture for  construction  and  enlargement  of  canals  to  1913,  $104,152,119. 
Canada  Year  Book  (1913),  p.  472. 

*  Canal  Statistics  for  the  Season  of  Navigation  (1914),  p.  98. 


14  CANADIAN  RAILWAY  RATES 

of  water  transportation  is  at  present  in  operation  and  is  a 
permanent  element,  as  a  competing  means  of  carriage,  in 
the  rate  situation  of  the  Dominion.  This  may  readily  be 
seen  if  we  turn  to  the  latest  figures  for  items  of  freight 
carriage  passing  through  Canadian  canals.  To  avoid  the 
disruption  in  trade  caused  by  the  Great  War  the  follow- 
ing data  are  taken  from  the  Canada  Year  Book  for  1913. 
For  the  calendar  year  1913  the  total  volume  of  traffic 
through  the  canals  of  the  Dominion  amounted  to  52,053,- 
913  tons.  These  are  gross  figures;  net  business  is  placed 
at  44,901,804  tons.  The  discrepancy  is  due  to  the  statis- 
tical system  that  has  long  been  in  use  in  Canada,  by  which, 
in  the  case  of  the  longer  freight  movements,  the  same  traffic 
is  recorded  at  different  points  in  the  voyage.  Thus  traffic 
between  Fort  William  and  Montreal  is  first  credited  to  the 
canal  at  Sault  Ste.  Marie,  then  to  the  Welland  Canal,  and 
finally  to  the  St.  Lawrence  canals.  A  glance  at  the  indi- 
vidual systems  shows  that  by  far  the  largest  traffic  goes 
through  the  Sault  Ste.  Marie  Canal.  ^  Out  of  this  volume 
32,419,242  tons  consisted  of  iron  ore  moving  from  the  head 
of  Lake  Superior  chiefly  to  ports  on  Lake  Erie.  Canal 
traffic  in  Canada  in  1913 :  — 

Sault  Ste.  Marie 42,699,324  tons 

Welland 3,570,714      " 

St.  Lawrence 4,302,427      ** 

Chambly 555,602 

St.  Peter's 71,514 

Murray 180,576 

Ottawa 365,438 

Rideau 171,223 

Trent 55,800 

St.  Andrew's 81,295 


52,053,913  tons  « 


*  Canal  Statistics  for  the  Season  of  Navigation  (1914),  p.  102,  gives  full 
information  regarding  this  extension  of  the  St.  Lawrence-Great  Lakes 
system.  The  canal  was  first  opened  for  traffic  in  1895. 

»  Canada  Year  Book  (1913),  pp.  464-72. 


DEVELOPMENT  OF  CANADIAN  WATERWAYS    15 

In  round  numbers  there  was  an  increase  of  freight  ton- 
nage for  the  year  over  1912  of  about  5,000,000  tons.^ 
These  figures  show  that  the  canal  systems  of  Canada  are 
by  no  means  obsolete  as  traflBc  carriers  even  if  the  greater 
weight  of  traffic  is  carried  by  the  railroads.  Moreover,  in 
the  more  important  systems  there  is  convincing  evidence 
that  the  complete  utilization  of  these  facilities  rests  upon 
traffic  moving  between  American  points.  Thus  in  1913 
there  were  36,325,011  tons  of  traffic  of  this  nature.  The 
sharp  decline  in  this  traffic  in  1915  to  5,353,726  tons,  due 
in  part  to  the  completion  of  a  superior  lock  on  the  Ameri- 
can side  at  Sault  Ste.  Marie,  makes  this  conclusion  very 
clear.  The  United  States  is  in  no  wise  dependent  upon  Ca- 
nada for  her  means  of  transportation,  but  has  competing 
routes  of  her  own,  capable  of  diverting  Canadian  traffic. 
This  indicates  a  limitation  on  the  effectiveness  of  rate  con- 
trol in  Canada.  In  the  nature  of  the  case  the  Canadian 
Government  can  exercise  no  control  over  rates  on  the 
competing  foreign  routes.  It  lacks  jurisdiction.  Hence, 
the  great  system  of  transportation  by  water  built  up  by 
Canada  as  a  national  enterprise,  because  it  does  not  lie 
deep  within  Canadian  territory  with  a  secure  monopoly 
of  traffic  and  Canadian  control  of  other  avenues  of  freight 
carriage,  but  exposed  to  the  competition  of  a  foreign  neigh- 
bor and  foreign  routes,  is  a  disturbing  factor  in  the  regu- 
lation of  rates  to  transportation.  The  fact  that  Canadian 
canals  have  been  made  free  of  toll  since  1903  does  not 
disturb  this  conclusion.  It  simply  means  in  effect  that  a 
possible  method  of  regulation  through  the  adjustment  of 
canal  tolls  to  harmonize  them  with  railway  rates  has  been 
foregone.  In  the  face  of  the  difficulties  already  referred  to 

^  For  the  year  1914  the  total  volume  of  traffic  through  the  canals  of 
the  Dommion  amounted  to  37,023,237  tons;  for  the  year  1915, 15,198,803. 
In  both  years  the  decline  has  largely  been  at  the  Sault  Ste.  Marie  Canal, 
a  factor  in  1915  being  the  diversion  of  traffic  to  the  American  canal 
through  the  availability  of  a  new  and  larger  lock  on  the  American  side. 
Canada  Year  Book  (1915),  p.  490. 


16  CANADIAN  RAILWAY  RATES 

it  is  probable  that  this  was  the  wisest  course.  But  at  the 
same  time  this  does  not  invalidate  the  conclusion  that  in 
so  far  as  the  canal  systems  have  proved  to  be  competing, 
unregulated  systems  of  transportation,  they  have  aggra- 
vated the  acuteness  of  the  general  railway  rate  prob- 
lems which  come  before  the  Board  of  Railway  Commis- 
sioners for  solution.  The  cardinal  importance  of  this 
proposition  will  develop  as  the  cases  which  have  come 
before  the  Commission  are  reviewed. 


CHAPTER  II 

RAILWAY    POLICY   OF    THE   CONFEDERATION 
PROVINCES 

§  1.  The  preceding  survey  of  canal  development  clears 
the  way  for  the  consideration  of  a  long  period  of  railway 
policy.  This  centers  around  the  great  project  of  uniting 
the  Provinces  of  eastern  British  North  America  by  one 
continuous  line  of  rail.  Though  not  on  the  surface,  behind 
this  idea  are  disclosed  the  same  driving  forces  that  were 
dominant  in  the  construction  of  Canadian  canals,  to  wit: 
the  determination  to  share  in  the  carrying  trade  of  the 
West  ^  and  the  felt  necessity  of  uniting  the  colonies  for 
military  security.^  In  the  event  these  two  ideas  became 
disunited  and  their  outworking  can  be  observed  in  con- 
nection with  two  projects  which  came  to  be  viewed  as 
separate.  These  projects,  for  convenience,  may  be  stud- 
ied apart.  They  are  the  construction  of  the  Grand  Trunk 
and  of  the  Intercolonial  Railways;  the  former  put  forward 
by  the  Province  of  Canada  and  the  latter  a  project  also 
involving  the  Maritime  Provinces  and  the  Imperial  Gov- 
ernment. Of  the  two  the  Grand  Trunk  scheme  came  to 
completion  first  and  may  now  be  considered. 

Scarcely  had  the  Canadian  Provinces  begun  to  enjoy 
the  fruits  of  their  ambitiously  conceived  canal  policy 
when  an  event  occurred  in  England  which,  as  a  secon- 

^  James  Buchanan,  Letter  to  His  Excellency  Sir  Francis  Bond  Head, 
etc.   Cp.  Keefer,  op.  cit.,  p.  197. 

"It  became  evident  unless  Canada  could  combine  with  her  unrivaled 
inland  navigation  a  railroad  system  connected  therewith  and  mutually 
sustaining  each  other,  the  whole  of  her  large  outlay  must  forever  remain 
unproductive."  Hon.  A.  T.  Gait,  Minister  of  Finance,  Canada,  18^9 
to  1859,  p.  22. 

^  Earl  of  Durham,  Report  of  the  Affairs  of  British  North  America,  p.  114. 


18  CANADIAN  RAILWAY  RATES 

dary  result,  put  to  the  test  the  pretensions  of  the  St.  Law- 
rence route.  This  was  the  fall  of  protection.  In  1846  the 
repeal  of  the  Corn  Laws  enabled  American  grain  from 
American  ports  to  enter  Britain  on  precisely  the  same 
terms  as  the  colonial  product.  It  has  already  been  pointed 
out  that  until  that  time  the  ports  of  Montreal  and  Quebec 
had  derived  adventitious  aid  from  the  British  Navigation 
Laws. 

Preceding  the  repeal  of  the  Com  Laws,  regulations, 
varying  from  time  to  time,  governed  the  importation  of 
corn  into  Great  Britain.  These  regulations  had  granted 
a  substantial  preference  to  com  entering  the  mother  coun- 
try from  British  North  America.  As  a  result  of  this  pref- 
erence much  American  wheat  had  entered  Canada  in  the 
West  and  later  had  indirectly  gone  to  swell  the  total  of  ex- 
ports to  Great  Britain.  Canadians  found  it  profitable  to 
ship  their  own  wheat  to  the  mother  country  and  rely  upon 
American  importations  for  their  own  supply.  Moreover, 
American  wheat  was  imported  into  Canada  and  ground 
into  flour  which  later  found  a  market  across  the  ocean. ^ 
This  practice  had  groTATi  up  under  a  rule  laid  down  in  the 
English  courts,  and  later  confirmed  by  statute,  that  all 
manufactured  goods  should  be  deemed  to  be  the  produce 
of  the  country  in  which  they  were  manufactured.^  The 
repeal  of  the  Corn  Laws  took  away  the  practical  value  of 
this  ruling  and  the  loss  of  this  advantage  was  in  itself  a 
severe  blow  to  the  Canadian  millers  and  forwarders,  who 
were  slowly  learning  that  the  success  of  a  route  did  not 
rest  entirely  upon  the  ease  with  which  goods  could  be  con- 
veyed to  the  tidewater  terminal,  but  also  upon  the  freight 
and  insurance  rates  which  could  be  secured  from  that 
point  to  the  markets  of  the  world.  They  were  compelled  to 
recognize  that  the  diflficulties  and  dangers  of  navigation 
in  the  St.  Lawrence  and  Gulf,  involving  higher  charges 

1  6  Vic,  c.  31,  Canada  (1843);  6  &  7  Vic,  c  29,  Great  Britain. 

2  Bernard  HoUand,  The  Fall  of  Protection,  pp.  16,  118  ff. 


RAILWAY  POLICY  OF  THE  PROVINCES         19 

than  to  New  York,  was  an  element  in  the  struggle  be- 
tween the  two  routes  and  their  ports.  ^ 

§  2.  The  drastic  adjustments  made  necessary  in  Cana- 
dian trade  by  the  repeal  of  the  Corn  Laws,  though  they 
contributed  to  the  decline  in  relative  importance  of  the 
St.  Lawrence  route,  in  the  final  result  were  not  the  real 
forces  that  undermined  the  supremacy  claimed  for  it. 
The  advent  of  direct  and  convenient  lines  of  railways  into 
the  Middle  Western  States  struck  the  decisive  blow  that 
was  fatal  to  the  hopes  of  a  monopoly  in  the  carriage  of 
grain  for  export,  or  indeed  of  the  longer  hauls  of  any  sort. 
Henceforth  the  burden  of  effort  was  shifted  from  that 
aim  to  the  less  ambitious  one  of  enlarging  and  improving 
the  Canadian  system  of  transportation  already  developed 
with  a  view  to  protecting  the  heavy  capital  investments 
placed  therein.  2  Canadian  statesmen  and  commercial 
leaders  saw  that  they  had  a  new  and  much  more  difficult 
factor  to  contend  with  now,  one  that  at  the  outset  took  the 
strain  of  pace-making  off  American  shoulders  and  placed 
it  upon  their  own.^  Listead  of  a  direct  route  by  water 
competing  with  a  less  convenient  one  of  the  same  nature, 
railroads  provided  an  equally  direct  line  of  a  more  con- 
venient nature  to  the  American  seaboard.  Not  only  did  this 
condition  make  necessary  that  American  competitive  rates 
should  be  met  to  the  city  of  Montreal,  but  it  made  the  addi- 
tional demand  of  an  outlet  to  another  port  that  would  not 
be  unavailable  for  four  or  five  months  in  the  year.  In  this 
respect  the  superiority  claimed  for  the  Welland  Canal  over 
the  Erie,  because  it  was  open  a  month  longer  in  the  year  ^ 

*  "The  reason  why  Western  traders  keep  aloof  from  the  St.  Lawrence 
can  only  be  found  in  the  relative  prices  of  transatlantic  freight  from  New 
York  and  Quebec."  C.  Donlevy,  From  the  Journal  de  Quebec,  The  St.  Law- 
rence as  a  Great  Commercial  Highway,  p.  23. 

*  Gait,  op.  cit.,  p.  19. 

'  Edward  Jenkins,  M.P.,  Agent  General  of  Canada,  The  Times  and 
Mr.  Potter  on  Canadian  Railways,  p.  8. 

*  "  It  seems  to  be  considered  certain  that  the  States  of  Maine,  Vermont, 
and  portions  of  New  York  and  Massachusetts  will  receive  a  large  share 


80  CANADIAN  RAILWAY  RATES 

than  its  rival,  was  wiped  out  by  the  new  avenues  of  access 
to  New  York,  a  port  open  throughout  the  winter  while  the 
Canadian  channel  was  blocked  with  ice. 

The  rapid  growth  of  Upper  Canada  stimulated  the 
movement  for  an  extensive  system  of  railway  lines  to  meet 
the  new  peril.  Financial  magnates  as  well  as  commercial 
leaders  scented  large  profits  in  the  construction  of  railroad 
lines,  and  helped  to  exploit  national  sentiment.  There 
was  thus  produced  the  familiar  phenomenon  of  a  fusion 
of  selfish  interest,  united  in  a  single  demand,  and  skill- 
fully fastened  upon  the  proper  ambition  of  national  growth 
and  integrity.^  The  first  railroads  in  the  Canadian  Prov- 
inces had  been  local  in  aim  and  were  in  the  nature  of 
feeders  or  portage  lines  complementary  to  the  waterways. ^ 
The  demand  that  now  crystallized  was  for  a  main  trunk 
line  that  would,  to  quote  Hon.  A.  T.  Gait,  enable  Canada, 
to  "combine  with  her  unrivaled  inland  navigation  a  rail- 
road system  connected  therewith  and  mutually  sustain- 
ing each  other."  Thus  it  was  the  destiny  of  Canada  that 
the  conditions  outlined  above  were  to  result  in  the  fact 
that  the  first  great  railroad  built  on  Canadian  soil  was 
to  be  planned  with  a  view,  not  to  independent  economic 
development  and  success,  but  with  a  view  to  intimate 
connection  with  another  method  of  transportation  then 
just  beginning  to  reveal  its  inflexibility  to  modern  re- 
quirements. 

At  its  inception  the  scheme  of  a  main  trunk  fine  included 

of  their  breadstuffs  and  provisions  by  the  Welland  and  St.  Lawrence 
Canals  which  will  be  open  on  the  average  a  fortnight  earlier  and  later 
than  the  Erie  Canal."  Hon.  Francis  Hincks,  M.P.,  Canada,  its  Financial 
Position  and  Resources,  p.  5. 

^  Cp.  Gustavus  Myers,  History  of  Canadian  Wealth,  vol.  i,  chap,  x  ff. 

*  While  a  number  of  charters  had  been  granted,  there  was  only  sixty 
mUes  of  railroad  actually  constructed  before  1850  in  Quebec,  none  in 
Ontario,  or  New  Brunswick,  or  Nova  Scotia.  See  Canada  Year  Book 
(1912),  p.  304.  Trout,  op.  cit.,  p.  33,  gives  a  lively  description  of  the  first 
locomotive  used  in  Canada  on  the  Champlain  and  St.  Lawrence  Rail- 
way, chartered  in  1832. 


RAILWAY  POLICY  OF  THE  PROVINCES         21 

an  outlet  at  Halifax.  The  extension  to  the  Maritime 
Provinces,  it  was  argued,  would  perform  the  double  service 
of  providing  a  winter  outlet  for  Canada  and  of  meeting 
the  desire  of  the  Imperial  Government  to  have  a  mili- 
tary road  between  the  seaboard  and  Ontario  and  Quebec. 
The  circumstances  under  which  this  design  developed  into 
a  separate  project  are  so  entangled  with  the  greater  enter- 
prise of  a  main  trunk  line  that  they  are  best  set  forth  at 
once.  Before  the  latter  scheme  came  to  the  front,  the  Brit- 
ish Government  had  employed  a  military  engineer  to  sur- 
vey a  route  from  Halifax  to  Quebec.^  The  route  selected, 
in  deference  to  military  considerations,  lay  along  the  coast 
line  of  New  Brunswick  remote  from  the  city  of  St.  John, 
the  chief  center  of  trade  in  the  Province.  An  earlier  pro- 
posed route  had  been  in  a  more  direct  line  to  Quebec  along 
the  American  boundary  through  territory  that  was  after- 
wards declared  to  be  the  possession  of  the  United  States. ^ 
Subsequent  proposals  for  a  line  skirting  the  Maine  bound- 
ary were  rejected  because  such  a  line  would  be  unsuit- 
able for  military  purposes.^  St.  John  and  central  New 
Brunswick  had  close  commercial  relations  with  Portland 
across  the  American  border  and  desired  railway  connec- 
tions with  that  city.  Moreover,  the  people  of  New  Bruns- 
wick were  in  no  mood  to  contribute  to  the  construction 
of  an  intercolonial  line  of  railway  which  would  pass  through 
a  sparsely  settled  portion  of  the  Province  and  terminate 
at  a  Nova  Scotian  seaport. 

Affairs  were  in  this  state  when  Earl  Grey,  Colonial  Sec- 
retary, in  reply  to  Hon.  Joseph  Howe,  of  Nova  Scotia, 
offered,  on  behalf  of  the  Imperial  Government,  financial 
accommodation  that  would  enable  a  line  to  be  built  in 
accordance  with  the  military  survey.  He  also  sanctioned 
the  building  of  the  European  and  North  American  line,  a 

^  Major  Robinson  in  1848,  Final  Report,  etc. 
2  By  the  Ashburton  Treaty,  in  1842. 
^  Vide  Major  Robinson's  Report.  _ 


22  C.\NADIAN  RAILWAY  RATES 

lateral  branch  from  the  proposed  intercolonial  line  to  the 
American  border.  Howe  construed  this  sanction  into  a 
promise  of  aid,  and  on  the  strength  of  his  representation 
of  Earl  Grey's  ofiFer  it  was  believed  that  the  Imperial 
Government  could  be  induced  to  stand  behind  the  greater 
scheme  of  a  complete  line  from  Windsor,  opposite  Detroit, 
to  Halifax.^  Howe,  as  a  Nova  Scotian,  was  of  course 
deeply  interested  in  such  a  consummation,  and  his  good 
offices  in  connection  with  the  European  and  North  Ameri- 
can line,  which  would  give  New  Brunswick  a  railroad 
from  St.  John  to  Portland,  were  solely  with  a  view  to 
swinging  New  Brunswick  into  line  on  the  intercolonial 
project.  In  this  he  was  successful. 

As  a  result  the  Legislature  of  Canada  passed  an  act  in 
1851  which  provided  for  three  eventualities:  (a)  the  con- 
struction of  an  intercolonial  railway  from  Halifax  to  Que- 
bec in  conjunction  with  Nova  Scotia  and  New  Brunswick 
on  a  loan  under  imperial  guarantee;  (6)  the  continuance 
of  the  Intercolonial  as  part  of  the  main  trunk  line  to  Ham- 
ilton or  to  connect  with  the  Great  Western  Railway  at 
Niagara,  if  the  imperial  guarantee  were  obtained;  if  it 
were  not  obtained,  the  continuation  of  the  main  trunk  line 
jointly  by  the  Provinces  of  Upper  and  Lower  Canada 
with  the  aid  of  municipal  corporations;  (c)  if  these  plans 
miscarried,  to  construct  the  main  trunk  line  under  an  act 
passed  in  1849  ^  whereby  the  Government  agreed  to  guaran- 
tee the  bonds  of  railroad  companies  after  one  half  of  the 
line  had  been  constructed,  provided  it  was  at  least  seventy 
miles  in  length.^ 

After  this  act  was  passed,  Hon.  Francis  Hincks,  In- 
spector-General for  Canada,  prepared  to  visit  England  to 
arrange  finally  details  of  the  plan  with  the  delegates  from 

^  Appendix  to  the  Sixteenth  Volume  of  the  Journals  of  the  Legislative 
Assembly  of  the  Province  of  Canada.  Appendix  No.  ^9.  Memo  submitted 
to  the  Imperial  Government.  Cp.  Sir  Francis  Hincks,  Reminiscences  of  My 
Public  Life,  p.  201.  Hon.  Joseph  Howe,  Speeches  and  Public  Letters,  vol. 
n,  p.  447. 

2  14  &  15  Vic,  c.  73  (1851).        ^  12  Vic.  c.  84;  12  Vic,  c.  29  (1849). 


RAILWAY  POLICY  OF  THE  PROVINCES        23 

the  Maritime  Provinces  and  the  Imperial  Government.* 
In  the  meantime,  however,  a  note  from  the  Colonial  Sec- 
retary informed  the  Canadian  Governments  that  imperial 
sanction  to  the  lateral  branch  to  the  Maine  border  did  not 
carry  with  it  a  guarantee  of  financial  assistance  for  that 
part  of  the  project.  Though  bitterly  disappointed,  the 
colonies  agreed  to  unite  in  the  construction  of  the  Inter- 
colonial along  the  valley  of  the  St.  John  River,  and  with 
this  understanding  Hincks  sailed  to  England.  What  nego- 
tiations took  place  with  the  Colonial  Office  to  secure  the 
validation  of  this  new  plan  is  a  subject  of  controversy. 
This  much,  however,  is  clear.  The  new  route,  suddenly 
agreed  upon  by  the  Canadian  Governments,  was  repug- 
nant to  the  people  of  Nova  Scotia  and  Howe  did  not 
appear  in  London  to  carry  the  scheme  through.  Under 
the  circumstances  an  impasse  occurred  and  Hincks 
abruptly  broke  with  the  Colonial  OflSce  to  enter  into  ne- 
gotiations with  a  prominent  firm  of  contractors  and  rail- 
way promoters,  for  the  building  of  the  main  trunk  line 
proper,  the  project  in  which  Upper  and  Lower  Canada 
were  particularly  interested.  In  this  way  the  two  schemes 
fell  apart  and  despite  the  efforts  of  Nova  Scotia  the  In- 
tercolonial scheme  drifted  into  the  background  of  pubUc 
affairs.  England  became  engrossed  in  the  Crimean  War 
and  the  Indian  Mutiny.  Only  threatened  complications 
with  the  United  States  arising  out  of  the  American  Civil 
War  renewed  her  interest  in  the  project.^ 

§  3.  When  Hincks  was  in  England,  Canadian  railway 
projects  were  looked  upon  with  considerable  favor  —  "as 
a  gamble  or  an  investment."  ^  The  main  trunk-line  scheme 
attracted  the  attention  of  a  firm  of  prominent  contrac- 

^  Appendix  No.  i9.  Journal  of  the  House,  vol.  16.  Cp.  Pope,  Memoir 
of  the  Rt.  Hon.  Sir  John  A.  MacDonald.  vol.  i,  p.  107  ff. 

2  On  the  Military  and  Commercial  Importance  of  Completing  the  Line  of 
Railway  from  Halifax  to  Quebec,  to  which  is  added  Official  Correspondence,  etc. 

'  Thomas  Storrow  Brown,  History  of  the  Grand  Trunk  Railway  of 
Canada,  p.  40. 


24  CANADIAN  RAILWAY  RATES 

tors  ^  who  made  arrangements  with  Hincks  both  to  con- 
struct the  line  and  to  promote  the  company.  Accordingly, 
on  the  latter's  advice  the  Canadian  Parliament  passed 
three  measures  in  November,  1852,  to  implement  the 
agreement.^  These  measures  provided  for  a  Canadian 
guarantee  of  £3000  to  the  mile,  the  amalgamation  of  a 
number  of  existing  charters  and  the  incorporation  of  the 
Grand  Trunk  Railway,  the  stock  of  which  the  contractor 
undertook  to  dispose  of.  The  enterprise  was  launched 
with  great  eclat  as  a  national  undertaking;  the  Premier 
and  other  members  of  the  Administration  became  direc- 
tors. Hon.  John  Ross,  Solicitor  for  Canada  West,  was 
elected  president.  The  project  was  regarded  as  "a  noble 
enterprise  intimately  blended  with  the  hopes  of  Canada," 
possessing  a  "character  which  took  it  out  of  the  category 
of  ordinary  speculations."  ^  Under  the  circumstances  the 
contractors  had  an  easy  time  marketing  the  stock.  The 
first  block  offered  to  the  public  was  oversubscribed  three 
times. ^  The  position  of  the  investors  was  made  even  more 
secure  by  an  act  passed  on  the  advice  of  the  contractors 
which  prevented  the  pledging  of  the  credit  of  Canada  to 
any  other  railway  enterprise.  ^ 

With  apparently  everything  in  its  favor  the  Grand 
Trunk  Company  took  up  the  task  of  providing  Canada 
with  a  main  line  which,  it  was  fondly  hoped,  would  put 
the  colony  once  more  on  even  terms  with  its  American 
rival.  Then  followed  an  orgy  of  extravagant  railroad 
building.^  There  was  a  perfect  riot  of  wastefulness  in 
which  unfortunately  the  Grand  Trunk  was  not  alone.' 

^  Messrs.  Peto,  Brassey,  Betts  &  Jackson. 

2  16  Vic,  cc.  37,  38,  39. 

'  Statemevis,  Reports  and  Accounts  of  the  Grand  Trunk  Co.,  of  Canada, 
Laid  before  the  Legislative  Assembly,  April  S3,  1857,  p.  71. 

«  Brown,  op.  cit.,  p.  17.  ^  is  Vic,  c.  33  (1855). 

®  See  Report  of  the  Commissioners  Appointed  to  Enquire  into  the  Affairs 
of  the  Grand  Trunk  Railway. 

^  Myers,  op.  cit.,  gives  a  lurid  account  of  the  railroad  jobbery  of  this 
period  in  chap,  x  ff. 


RAILWAY  POLICY  OF  THE  PROVINCES         25 

Under  a  municipal  loan  act  towns  and  cities  were  enabled 
to  pledge  their  credit  for  railroad  enterprises.^  They  did 
so  to  an  alarming  degree  to  secure  connections.  Towns 
and  villages  borrowed  recklessly  and  ultimately  created  a 
situation  that  compelled  state  intervention. ^  "The  years 
of  1852-57  will  ever  be  remembered  as  those  of  financial 
plenty  and  the  saturnalia  of  nearly  all  classes  connected 
with  railways."  ^  In  the  case  of  the  Grand  Trunk  the 
natural  result  was  that  it  was  soon  in  deep  waters.  Re- 
peatedly ^  the  Provincial  Government  was  forced  to  come 
to  its  aid.  The  Government  could  not  permit  the  enter- 
prise to  collapse  lest  such  an  occurrence  should  destroy 
Canadian  credit,  particularly  since  the  appearance  on  the 
directorate  of  members  of  the  Government  had  given 
color  to  the  contention  of  English  investors  that  the  Grand 
Trunk  was  distinctly  a  national  undertaking.^ 

Conditions  failed  to  improve  as  the  line  approached 
completion.  The  traffic  that  it  was  expected  to  carry  did 
not  materialize.  This  was  the  more  disappointing  to  the 
investors  in  view  of  a  circumstance  that  appeared  when 
the  line  was  finally  mapped  out.  It  will  be  recalled  that 
originally  it  was  projected  with  a  view  to  cooperating  with 
the  St.  Lawrence  in  obtaining  and  carrying  through  traffic. 
The  public  sentiment  behind  such  an  idea,  strengthened 
by  Canada's  experiments  in  waterway  improvement,  was 

1  16  Vic,  cc.  138,  213,  22. 

2  See  Sir  Oliver  Mowat's  speech  in  the  Ontario  Legislature,  March  7, 
1873. 

^  Keefer,  op.  cit.,  p.  221. 

*  The  principal  acts  by  which  aid  was  extended  were:  18  Vic,  c  174 
(1855);  19-20  Vic,  c  111  (1857);  20  Vic,  c  11  (1857);  22  Vic,  c  52 
(1859);  25  Vic,  c  56  (1862). 

^  The  London  Quarterly  Review  (January,  1861)  refers  to  "the  com- 
plete collapse  of  this  gigantic  undertaking."  Cp.  First  Report  of  the  Select 
Committee  of  Share  and  Bond  Holders,  etc.,  including  a  Petition  to  the 
Legislative  Assembly  of  Canada,  February  6,  1861.  Statements,  Reports, 
and  Accounts  laid  before  the  Legislative  Assembly,  April  23,  1857,  loc.  cit., 
p.  71.  "Canadian  Credit  Securities,"  issued  by  Taunton  &  Molyneux. 
H.  Allan,  The  "  Times"  and  Its  Correspondents  on  Canadian  Railways. 


26  CANADIAN  RAILWAY  RATES 

very  strong.  But  when  the  question  came  up  as  to  the 
location  of  the  hne  it  was  laid  out  without  regard  to  the 
idea  of  cooperation,  or  to  the  independent  development 
of  Canada.  It  was  to  be  a  through  line  pure  and  simple. 
Directness  of  connection  between  East  and  West  was 
made  the  controlling  consideration.  The  standing  com- 
mittee of  the  Legislature,  which  validated  the  change, 
held  that  the  "  true  interest  of  the  Province  would  be  best 
consulted  by  adopting  the  most  direct  route."  ^  In  con- 
sequence the  railway  paralleled  the  St.  Lawrence  from 
Kingston  to  Montreal.  This  important  change  in  policy 
was  really  due  to  the  promptings  of  the  English  directors. 
These  gentlemen  had  seen  railways  supplant  canals  in 
England  and  they  believed  that  the  same  triumph  would 
be  repeated  in  Canada.  They  had  no  interest  in  the  utili- 
zation of  existing  investments  in  canals;  and,  paying  the 
piper,  they  were  able  to  call  the  tune.  Thus  ultimately 
the  Grand  Trunk  appeared  as  an  independent  competitor 
of  American  railroads  and  of  Canadian  canals.  In  addition 
to  these  competitors  it  had  to  face  the  competition  and 
hostility  of  the  Great  Western  Railway,  an  important  line 
in  the  western  Ontario  peninsula.^ 

The  consequences  were  that,  while  the  Grand  Trunk 
diverted  a  small  share  of  the  through  traffic  from  American 
lines,  it  mainly  affected  the  St.  Lawrence  and  support- 
ing canals.  The  logic  of  the  situation  was  simple.  Ameri- 
can railway  lines  were  injuring  the  business  of  the  St. 
Lawrence  route.   To  retain  this  carrying  trade  the  Cana- 

»  Trout,  op.  cit..  p.  61.  See  Keefer,  op.  dt.,  p.  206  ff.  The  effects  of  this 
policy  are  very  fully  set  forth  in  the  Report  of  the  Commissioners  Appointed 
to  Enquire  into  the  Affairs  of  the  Grand  Trunk  Railway.  Jenkins,  writing 
to  the  Times  in  1875,  said,  "English  directors  have  been  making  their 
experiments  of  competition  with  the  Americans."  The  Times  and  Mr. 
Potter,  supra,  p.  8. 

^  8  Vic,  c.  86  (1845).  Built  largely  between  1853  and  1856  from  the 
head  of  Lake  Erie  to  Burlington  Bay  and  Niagara  to  compete  with  the 
Welland  Canal.  Charles  Stuart,  C.E.,  Report  on  the  Great  Western  Railr 
way,  September  1,  1847. 


RAILWAY  POLICY  OF  THE  PROVINCES         27 

dian  Provinces  planned  the  Grand  Trunk  and  thought 
thereby  to  protect  their  capital  investments  in  canals  as 
well.  But  the  English  influences  behind  the  project  man- 
aged to  dictate  a  policy  to  the  Legislature  which  looked 
to  the  complete  absorption  of  through  transit  traffic  by  the 
rail  route.  This  policy  fell  far  short  of  success.  In  its  work- 
ing out  it  resulted  in  a  lower  volume  of  traffic  to  each 
Canadian  system  with  correspondingly  scanty  returns.* 
It  may  be  observed  that,  without  the  added  complication 
that  the  change  in  railway  policy  produced,  the  attempt 
to  assist  the  canals  by  a  through  line  of  railway  could  not 
give  very  great  promise  of  success.  In  so  far  as  the  Grand 
Trunk  could  divert  trade  from  the  American  lines  which 
had  been  encroaching  upon  the  traffic  of  the  route  by 
water,  it  would  to  that  degree  be  in  a  position  to  inflict 
the  injury  itself.  As  it  worked  out,  however,  there  was  not 
sufficient  traffic  offered  for  carriage  to  enable  the  Grand 
Trunk  to  become  a  paying  proposition.  ^  The  inevitable 
result  was  that  the  company  was  soon  in  difficulty  and 
continued  to  be  in  that  state  from  1855  until  1862  when 
the  company  made  default  of  interest  payments  on  its 
bonds  and  the  directors  threatened  to  close  the  road.  The 
Government  came  to  its  rescue,  supplementing  its  pre- 

*  "  It  is  a  fact  rather  eschewed  by  the  two  critics  that  the  Great  West- 
ern and  Grand  Trunk  were  both  built  with  a  main  view  to  through  traflBc 
from  the  West  to  the  ocean  and  less  as  Canadian  lines  proper."  The  Times 
and  Mr.  Potter,  supra. 

2  "As  long  as  the  St.  Lawrence  flows  from  the  western  lakes  to  the 
ocean  at  certain  seasons  of  the  year  and  for  bulky  articles  of  which  the 
exports  of  America  principally  consist  the  water  must  continue  to  carry 
them  at  rates  which  would  be  ruinous  to  a  raUway.  .  .  .  Yet  from  the 
inception  of  the  Grant  Trunk  almost  down  to  the  present  time  the  policy 
has  been  to  run  in  competition  with  the  water  —  to  regard  it  as  an  enemy 
rather  than  as  a  most  efficient  aUy.  With  the  exception  of  Toronto  there 
is  not  a  point  from  one  end  of  the  road  to  the  other,  where  the  object  has 
not  been,  and  we  believe  avowedly,  to  render  communication  with  the 
water  difficult  and  inconvenient  —  to  run  for  more  than  three  hundred 
miles,  within  a  mile  or  two  at  most  of  the  navigation  and  yet  have  no 
points  where  the  two  routes  come  in  contact  or  can  exchange  traffic." 
Report  of  the  Commissioners  to  Enquire,  etc.,  supra,  p.  43. 


28  CANADIAN  RAILWAY  RATES 

vious  loans  by  permitting  the  issue  of  second  preference 
bonds  and  withdrawing  its  interest  claims  on  its  loans  un- 
til dividends  were  earned  on  the  common  stock.  This 
meant  a  considerable  scaling-down  of  fixed  charges,  for 
the  Government  advances  to  the  road  amounted  to  £3,- 
111,500.^  Finally,  when  this  did  not  avail  in  1862  the 
company  was  reorganized  and  its  bond  issues  converted 
into  preferred  stocks.^ 

The  failure  of  the  Grand  Trunk  to  capture  the  Western 
trade  at  the  outset,  and  the  futility  of  it  employing  its 
equipment  in  fighting  the  route  by  water  gradually  drove 
it  into  a  safer  policy.  Through  connections  to  Chicago 
enabled  it  to  bid  more  effectively  for  long-haul  traffic;' 
feeders  in  Ontario  developed  the  local  service;  the  St.  Law- 
rence &  Atlantic,  a  Portland  connection,  was  practically 
rebuilt  and  became  an  important  part  of  the  line.*  In  this 
way  the  Grand  Trunk  Railway  repaired  initial  defects  in 
location  and  policy  to  some  extent.  In  1884  it  absorbed 
the  Great  Western  Railway  and  further  strengthened  its 
position,^  though  thereby  becoming  knit  more  closely  than 
ever  to  conditions  affecting  transportation  in  the  United 
States.  Thus,  so  far  as  the  Grand  Trunk  is  concerned  there 
has  been  bequeathed  as  a  legacy  to  posterity  a  rate  situa- 
tion complicated  by  the  double  factors  of  waterway  com- 
petition and  intimate  and  competitive  relationships  with 
foreign  lines,  through  its  Chicago  and  Portland  connections. 

§  4.  The  considerations  which  had  finally  to  do  with 
the  construction  of  the  Intercolonial  Railway  concerned 
almost  exclusively  the  political  future  of  the  British  colo- 

1  22  Vic,  c.  52. 

^  In  1862,  when  the  Grand  Trunk  was  reorganized  (25  Vic.,  c.  56)  and 
provision  was  made  for  raising  £500,000  for  equipment. 

3  Provided  for  by  the  Act  of  1858. 

*  The  St.  Lawrence  &  Atlantic  was  secured  in  1853  (18  Vic,  c.  33).  The 
Report  of  the  Commissioners  points  out  that  it  might  have  been  obtained 
at  fifty  per  cent  discount  (p.  113). 

^  47  Vic,  c  52.  To  prevent  possible  relations  between  the  Great  West- 
ern and  the  Canadian  Pacific  Railway. 


RAILWAY  POLICY  OF  THE  PROVINCES         29 

nies  in  North  America.  Reasons  of  trade  and  commerce 
appear  as  subsidiary  advantages,  but  political  stability  and 
military  expediency  were  the  ends  which  actually  achieved 
the  consummation  of  the  scheme.  As  early  as  1832  ^  a 
railway  was  projected  between  St.  Andrews,  on  the  Bay 
of  Fundy,  and  the  city  of  Quebec,  but  it  was  Lord  Durham, 
in  his  celebrated  report,  who  put  the  necessity  of  inter- 
colonial connection  squarely  before  the  British  Govern- 
ment. ^  After  the  break  in  negotiations  in  1852,  which  has 
already  been  dealt  with,  each  colony  for  a  while  followed 
its  own  devices  in  railroad  building.  While  the  construc- 
tion of  the  Grand  Trunk  Railway  was  occupying  the  atten- 
tion of  Canada  (i.e.,  Ontario  and  Quebec),  New  Brunswick, 
with  a  view  to  obtaining  New  England  connections,  was 
constructing  a  line  toward  the  Maine  border.^  Nova 
Scotia  had  not  given  up  hope  that  time  would  make  an 
intercolonial  system  a  reality  and  was  building  north- 
wards in  the  general  direction  of  New  Brunswick.^  One 
might  imagine,  after  the  previous  fiasco,  that  the  proba- 
bility of  an  intercolonial  system  being  actually  achieved 
was  decidedly  remote,  if  not  altogether  unhkely. 

Public  men,  however,  continued  to  canvass  the  possi- 
bility of  such  a  route  and  to  discuss  its  advantages.  Fin- 
ally, by  mutual  agreement,  negotiations  were  reopened, 
though  at  first  with  small  success.  But  a  beginning  had 
been  made  and  in  the  end  delegates  proceeded  to  Eng- 
land to  interview  the  Home  Government.  In  the  mean- 
time events  were  occurring  that  were  greatly  increasing 
the  possibility  of  the  success  of  their  mission.  Their  arri- 

^  Journal  of  the  House  of  Assembly  of  Lower  Canada,  1835-36,  p.  282 
(N.B.)  6  Wm.  IV,  c.  31  (1836). 

^  Lord  Durham's  Report,  p.  113  ff. 

^  N.B.,  17  Vic,  c.  1.  See  also  Report  of  Survey  and  Extension  of  the 
European  and  North  American  Railway  to  the  American  Boundary  and 
Branch  Line  to  Fredericton.  Also  Reports  of  the  Railway  Commissioners 
of  New  Brunswick. 

*  N.S.,  17  Vic.,  c.  1.  Nova  Scotia  had  built  a  hundred  and  forty-five 
miles  before  Confederation  in  1867. 


30  CANADIAN  RAILWAY  RATES 

val  in  England  coincided  with  the  Trent  affair,  and  the 
unhappy  relations  existing  between  Great  Britain  and  the 
Northern  American  States  combined  with  the  repeal  of 
the  reciprocity  treaty  and  the  Fenian  agitation  to  lead 
Her  Majesty's  Government  to  lend  a  sympathetic  ear  to 
the  project.^  At  the  same  time  political  deadlocks  in 
Canada  had  thrown  the  issue  of  Confederation  into  the 
field.  In  their  desire  to  achieve  Confederation  the  states- 
men of  Canada  made  the  construction  of  the  Intercolonial 
Railway  a  part  of  the  compact  to  induce  the  Maritime 
Provinces  to  enter  into  the  union.  The  Intercolonial 
Railway  thus  became  the  seal  of  intercolonial  unity  while 
it  satisfied  Canada's  desire  for  winter  ports  and  Great 
Britain's  felt  necessity  for  military  communications.  By 
clause  145  of  the  Act  of  Confederation  the  Government 
of  the  Dominion  of  Canada  bound  itself  to  construct  the 
road  within  three  years,  while  the  Imperial  Government 
gave  a  guarantee  of  £3,000,000  for  a  line  "approved  by 
one  of  Her  Majesty's  principal  Secretaries  of  State."  ^ 

This  agreement  left  the  power  of  determining  the  route 
to  Great  Britain,  for  the  road  could  not  be  financed  with- 
out the  imperial  guarantee  and  the  imperial  guarantee 
rested  upon  an  approval  of  the  route  chosen.  As  the  Brit- 
ish Government,  under  the  ruling  preconception  of  free 
trade,  was  interested  only  in  the  military  advantages  of 
the  route,  this  vexed  problem  was  settled  by  the  choice  of 
the  northern  line  which  followed  very  largely  the  course 
recommended  by  Major  Robinson  in  1848.^  It  was  clearly 

^  Sir  E.  W.  Watkin,  who  was  present  at  the  delegates'  interview  with 
Lord  Palmerston,  gives  a  vivid  picture  of  the  influence  of  the  Trent  afiFair 
upon  the  situation.  Canada  and  the  United  States,  Recollections  by  Sir 
E.  W.  Watkin,  Bt.,  p.  83  ff. 

2  30  &  31  Vic,  c.  3;  c.  16  (1868). 

'  Copy,  Canada,  155. 

Downing  Street,  22  Jvly,  1868. 
My  Lord:  — ■ 

I  have  received  your  lordship's  telegraphic  message  that  the  route  by 
way  of  Bay  of  Chaleur  has  been  selected  by  the  Canadian  Government 


RAILWAY  POLICY  OF  THE  PROVINCES         31 

recognized  that  this  route  would  offer  few  advantages 
from  the  standpoint  of  traffic.  Traffic  considerations,  how- 
ever, were  forced  to  give  way  before  the  requirements  of 
the  Imperial  Government  for  a  line  accessible  to  the  sea 
and  remote  from  the  American  boundary.^  Such  a  line, 
while  linking  the  Provinces  together,  would  enable  Great 
Britain  to  reduce  the  size  of  its  military  establishments  at 
Halifax  and  Quebec.  Thus  in  times  of  peace  the  line  would 
lighten  the  burden  of  military  expenditure  in  the  mother 
country  and  in  case  of  war  with  the  United  States  greatly 

as  the  one  to  connect  Truro  with  River  du  Loup  and  thus  complete  the 
Intercolonial  Railway. 

I  understand  three  routes  to  have  been  under  consideration  of  the 
Government  of  Canada;  namely,  one  crossing  the  St.  John  River  at 
Woodstock  or  Fredericton,  the  second  in  a  more  central  direction  through 
New  Brunswick  and  the  third  following  the  line  selected  by  Major  Rob- 
inson in  1848. 

The  route  crossing  the  St.  John  River  either  at  Woodstock  or  Frederic- 
ton  is  one  to  which  the  consent  of  Her  Majesty's  Government  coidd  not 
have  been  given. 

The  objections  on  military  grounds  to  any  line  on  the  north  side  of  the 
St.  John  River  are  insuperable.  One  of  the  main  advantages  sought  in 
granting  an  imperial  guarantee  for  constructing  the  railway  would  have 
been  defeated,  if  that  line  had  been  selected. 

The  remaining  lines  were  the  central  line  and  that  following  the  gen- 
eral course  of  the  route  sm-veyed  by  Major  Robinson  —  and  Her  Ma- 
jesty's Government  have  learned  with  much  satisfaction  that  the  latter 
has  been  selected  by  the  Canadian  Government.  The  communication 
which  this  line  affords  with  the  Gulf  of  St.  Lawrence  at  various  points 
and  its  remoteness  from  the  American  border  are  conclusive  considera- 
tions in  its  favor,  and  there  can  be  no  doubt  that  it  is  the  only  one  which 
provides  for  the  national  objects  involved  in  the  undertaking. 
I  have,  etc. 

(Signed)  Buckingham  and  Chandgs. 

To  Governor,  the  Rt.  Hon.  Viscount  Monck. 

^  The  problem  of  routes  produced  an  unusually  large  number  of  pam- 
phlets of  which  there  is  a  good  collection  in  the  Canadian  archives  at 
Ottawa.  As  early  as  1849,  Hon.  Francis  Hincks  wrote:  "I  have  treated 
this  question  on  the  assumption  that  the  railway  will  be  improductive  as 
a  mercantile  speculation."  After  quoting  Major  Robinson  contra,  he 
concludes  that  there  is  "sufficient  doubt,  however,  to  prevent  the  work 
being  undertaken  by  any  private  company."  Canada,  its  Financial  Posi- 
tion and  Resources,  p.  19. 


S2  CANADIAN  RAILWAY  RATES 

increase  the  facility  with  which  Canada  could  be  defended. 
Nearly  fifty  years  have  elapsed  since  these  reasons  deter- 
mined the  location  of  the  Intercolonial  Railway,  a  period 
in  which  no  wars  have  occurred  involving  Canada  and 
the  United  States.  The  imperial  forces  have  since  been 
withdrawn.  But  the  long  succession  of  deficits  ^  which 
have  accompanied  the  operation  of  the  road  are  not  all 
chargeable  to  Government  ownership.  They  are  eloquent 
of  the  futility  of  laying  out  a  line  on  purely  military  con- 
siderations and  then  expecting  it  to  pay  as  a  commercial 
venture.^ 

The  work  of  constructing  the  road  was  entered  upon 
immediately  after  Confederation  and  the  whole  line  was 
opened  for  traffic  in  1876.^  One  hundred  and  twenty -six 
miles  between  Quebec  and  Riviere  du  Loup  were  acquired 
from  the  Grand  Trunk  in  1879.^  In  1899  the  control  of 
the  Drummond  County  Railway  gave  it  entrance  to  Mon- 
treal, its  present  western  terminus.^  It  has  thus  remained 
a  maritime  road,  subject  to  water  competition  as  well  as 
to  that  of  both  the  Grand  Trunk  and  the  Canadian  Pacific, 
both  of  which  have  entered  the  Lower  Provinces  by  more 
expeditious  routes.  In  the  carriage  of  through  freight,  it 
is  quite  unable,  therefore,  to  exercise  a  controlling  influ- 
ence on  rates  except  on  the  basis  of  larger  deficits. 

The  completion  of  the  Intercolonial  Railway  marks  the 
close  of  the  first  era  of  railway  construction  in  Canada. 
The  activity  of  that  period  embraced  the  three  colonies 
which  in  1867  became  the  Dominion  of  Canada.  Its  out- 
standing events  were  the  building  of  the  Grand  Trunk  and 

*  Deficits  have  occurred  thirty-four  times  since  its  construction.  Can- 
ada Year  Book  (1915),  p.  469  ff. 

^  Cp.  Dunn,  Journal  of  Political  Economy,  vol.  xxiv.  No.  6,  p.  547. 
Biggar,  Journal  of  Political  Economy,  vol.  xxv.  No.  2,  p.  148. 
^  Canada  Statistical  Year  Book  (1895),  p.  634. 

*  The  price  was  $1,500,000.  42  Vic,  c.  11. 

*  This  section  cost  $1,600,000.  62-63  Vic,  c.  6.  See  also  agreement 
with  the  Grand  Trunk.   62-63  Vic,  c  5. 


RAILWAY  POLICY  OF  THE  PROVINCES         33 

the  Intercolonial  roads,  which  together  linked  the  colonies 
by  lines  of  steel  and  gave  Quebec  and  Ontario  access 
to  the  sea  through  a  Canadian  port  at  all  seasons.  Of 
course,  contemporaneous  with  this  development,  there 
was  considerable  labor  expended  upon  the  construction  of 
short  lines.  Of  these  the  most  important  certainly  were 
the  Great  Western,  already  mentioned  in  connection  with 
the  Grand  Trunk,  and  the  Northern  Railway,^  which  pro- 
ceeded from  Toronto  northwards  and  penetrated  into  the 
Georgian  Bay  district.  In  eastern  Ontario  a  short  line  to 
the  St.  Lawrence  gave  Ottawa  railway  connections  with  the 
Grand  Trunk  and  with  American  lines  in  New  York  State.  ^ 
As  yet,  however,  it  could  scarcely  be  said  that  any  part 
of  Canada  exhibited  the  full  development  of  a  railway  net. 
There  were  some  intersections  in  Ontario,  but  on  the 
whole,  while  the  warp  had  been  laid,  the  woof  was  still 
lacking.  Practically  all  the  important  towns  had  obtained 
rail  connections,  but  these  connections  were  pretty  much 
to  the  nearest  Lake  port  or  a  means  of  communication  for 
import  or  export  traffic.  The  gradual  spread  of  areas  inter- 
communicated, the  filling-in  of  a  network  of  lines  in  the 
industrial  districts  of  Ontario  and  Quebec,  must  be  under- 
stood to  be  taking  place  while  public  attention  was  fo- 
cussed  upon  the  problem  of  the  construction  of  the  Pacific 
Railway,  the  next  important  event  in  the  history  of  Cana- 
dian transportation  facilities. 

1  12  Vic,  c.  196  (1849);  22  Vic,  c.  57  (1857). 

"  13-14  Vic,  c  132  (1851);  14-15  Vic,  c.  147  (1852);  16  Vic,  cc.  52, 
53  (1853);  18  Vic,  c  188  (1855). 


CHAPTER  III 

THE   ERA    OF   TRANSCONTINENTALS 

§  1.  The  reason  generally  given  for  the  building  of  the 
Pacific  railway  is  that  it  was  part  of  the  agreement  whereby 
British  Columbia  joined  the  Dominion.  A  similar  super- 
ficial examination  of  causes  explains  the  construction  of 
the  Intercolonial  Railway  on  the  basis  of  the  Confedera- 
tion compact.  It  has  been  shown,  however,  in  regard  to 
the  latter  that  the  Confederation  agreement  was  rather 
the  final  step  in  the  solution  of  a  problem  long  in  the  minds 
of  imperial  and  colonial  statesmen.  A  somewhat  analo- 
gous situation  is  revealed  in  the  case  of  the  Pacific  Rail- 
way, which  had  been  before  the  public  as  a  desirable  enter- 
prise an  even  longer  period  than  had  the  Intercolonial. 
It  will  not  be  forgotten  that  the  great  Champlain  himself 
entered  upon  his  western  explorations  with  a  view  to  dis- 
covering a  short  route  to  the  Orient.  This  aspect  of  a 
Canadian  transcontinental  route  came  to  the  front  again 
with  the  development  of  steam  transportation.  Prior  even 
to  Confederation  various  travelers  and  engineers  can- 
vassed the  feasibility  of  such  a  highway.  Naturally,  as 
they  treated  the  subject  in  a  vague  and  imaginative  way 
their  WTitings  did  not  lead  to  the  actual  construction  of 
such  a  line,  but  they  laid  the  foundation  of  an  abiding 
belief  ^  that  it  was  only  a  matter  of  time  until  Eastern  and 
Western  British  North  America  should  be  united  by  a 
railroad.  2  Finally  a  series  of  events,  about  to  be  recounted, 

^  "I  believe  that  many  in  this  room  will  live  to  hear  the  whistle  of  the 
steam  engine  in  the  passes  of  the  Rocky  Mountains  and  to  make  the 
journey  from  Halifax  to  the  Pacific  in  five  or  six  days."  Joseph  Howe, 
speaking  at  Halifax,  May  15,  1851. 

'  The  first  application  of  a  charter  to  construct  a  line  to  the  Pacific 
was  in  1851,  but  it  was  refused,  as  the  time  was  not  considered  ripe  for 
Buch  an  enterprise.  See  Journals  of  the  Legislaiice  Assembly  (1851),  vol.  i. 


THE  ERA  OF  TRANSCONTINENTALS  35 

brought  the  project  to  earth  and  placed  it  in  the  arena  of 
practical  politics.  Even  more  distinctly  than  in  the  pre- 
ceding phases  of  policy  dealt  with,  the  first  impulse  to 
build  such  a  line  came  from  broad-based  political  consid- 
erations. 

The  first  of  these  considerations  concerns  the  winning 
of  the  American  West.  The  very  rapid  expansion  of  the 
United  States  westward  and  northward,  under  the  stimu- 
lus of  railway  construction,  excited  the  alarm  of  Canadian 
statesmen.  They  feared  that  the  United  States  planned 
to  secure  a  large  part  of  the  Northwest  country  for  itself. 
This  fear  was  aggravated  by  boundary  disputes,  the  sig- 
nificance of  which  did  not  always  appear  to  be  obvious 
to  imperial  statesmen.^  In  the  second  place,  at  any  rate, 
the  fact  was  patent  that  the  American  "Granger"  lines 
would  carry  oflF  the  trade  of  the  Northwest  territories  to 
St.  Paul,  Minneapolis,  and  Chicago  unless  there  was  equally 
rapid  development  of  rail  facilities  on  the  Canadian  side 
of  the  boundary.  Each  of  these  reasons  was  a  powerful 
inducement  for  Canadian  statesmen  to  act.  The  New 
Brunswick  boundary  dispute  had  terminated  unsatisfac- 
torily for  Canada  with  the  loss  of  considerable  territory. 
In  the  case  of  the  Grand  Trunk  one  of  the  reasons  put 
forward  for  the  inability  of  that  road  to  capture  more 
through  traffic  was  the  claim  that  it  was  practically  im- 
possible to  do  so  once  traffic  had  formed  a  given  channel. 
Practical  experience,  as  well  as  political,  therefore,  ad- 
vised the  immediate  construction  of  lines  into  the  Cana- 
dian West.    Accordingly,  we  have  measures  taken  the 

^  In  1870  Sir  John  A.  MacDonald  wrote  as  follows  to  C.  J.  Brydges,  of 
the  Grand  Trunk  Railway:  "Many  thanks  for  your  letter  of  the  26th 
giving  me  an  account  of  your  conversation  with  ...  It  is  quite  evident 
to  me  not  only  from  this  conversation,  but  from  advices  from  Washing- 
ton, that  the  United  States  Government  are  resolved  to  do  all  they  can, 
short  of  war,  to  get  possession  of  the  Western  territory  and  we  must 
take  immediate  and  vigorous  steps  to  counteract  them.  One  of  the  first 
things  to  be  done  is  to  show  unmistakably  our  resolve  to  build  the  Pacific 
Railway."  Pope,  op.  cit.,  vol.  ii,  p.  161. 


36  CANADIAN  RAILWAY  RATES 

final  intent  of  which  were  to  check  American  exploitation 
north  of  the  forty-ninth  parallel. 

Immediately  after  Confederation  the  Dominion  of 
Canada  purchased  the  lands  of  the  Hudson's  Bay  Com- 
pany ^  and  established  the  Province  of  Manitoba.  The 
first  Northwest  rebellion  which  followed  this  step  drove 
home  the  necessity  of  a  line  of  rail  into  the  new  territory. 
There  was  the  danger  at  that  time  that  the  rebels  would 
voluntarily  call  upon  the  United  States  to  protect  them; 
many  reasons  why  such  an  appeal  would  not  be  made  in 
vain;  and  finally  the  great  military  difficulties  that  the 
little  force  sent  out  from  Eastern  Canada  to  put  down  the 
rebellion  had  had  to  endure  before  it  reached  its  destina- 
tion. ^  Beyond  Manitoba  lay  the  great  plain  that  has 
since  become  the  Provinces  of  Saskatchewan  and  Alberta, 
and  while  the  danger  appeared  to  be  past  in  Manitoba 
there  still  existed  to  the  west  of  it  the  possibility  of  an 
American  Wedge  being  thrust  in  between  Canada  and  the 
Pacific. 

Accordingly  the  entrance  of  British  Columbia  into  the 
Canadian  Confederation  was  the  next  step  to  be  achieved. 
This  was  accomplished  after  negotiations.  The  inclusion 
of  British  Columbia  in  the  sisterhood  of  Confederated 
Provinces  not  only  rounded  out  and  united  the  separate 
colonies  of  the  British  Crown,  but  really  guaranteed  to 
the  Dominion  her  gateway  to  the  West.^  The  construc- 
tion of  a  Pacific  railway  followed  as  a  political  as  well  as 
logical  outcome.  The  railway,  while  affording  physical 
and  tangible  evidence  of  the  union  that  had  been  con- 
summated, held  the  territories  safe  between  Manitoba 
and  the  Rocky  Mountains,  opened  up  an  immense  terri- 

1  The  incorporation  of  the  Northwest  Territories  Navigation  aod 
Railway  Company  was  refused  in  1851  because  of  difficulties  arising 
out  of  the  Hudson's  Bay  Company's  rights. 

^  Beckles  Willson,  The  Life  of  Lord  Strutlicona  and  Mount  Royal,  vol.  i, 
p.  432  ff. 

^  Pope,  op.  cit.,  vol.  II,  p.  124. 


THE  ERA  OF  TRANSCONTINENTALS  37 

tory  for  colonization,  and  checked  the  drift  of  trade  to 
American  cities.  Fundamentally,  therefore,  the  inclusion 
of  a  provision  in  the  British  Columbia  entrance  agreement 
that  a  transcontinental  line  should  be  built  rested  upon  the 
twofold  basis  of  national  unity  and  of  commercial  advan- 
tage. The  forces  which  separately  led  to  the  building  of 
the  Grand  Trunk  and  Intercolonial  Railways  were  of  suffi- 
cient power  in  this  instance  to  launch  and  carry  to  com- 
pletion Canada's  first  transcontinental  line.  Thus,  amid 
the  whirlpool  of  political  controversy  fundamentally 
Canada's  railway  policy  shows  singular  consistency,  ex- 
hibiting at  once  the  influence  of  geographical  situation  and 
the  force  of  national  ambition. 

§  2.  The  history  of  the  building  of  the  Pacific  Railway 
falls  into  two  parts.  The  first  period  belongs  to  the  decade 
of  1870-80  and  is  a  record  of  the  rivalry  between  compet- 
ing contractors,  of  competing  policies  of  construction,  and 
of  abortive  attempts  to  carry  the  work  forward.  When 
the  agreement  with  British  Columbia  was  signed  it  in- 
cluded the  proviso  that  the  road  was  to  be  built  within 
ten  years.  ^  The  inclusion  of  this  time  limit  drew  criticism 
from  the  Liberal  Party,  which  was  then  in  opposition. 
The  Liberals  held  that  it  was  hkely  to  lay  undue  burdens 
on  the  Eastern  Provinces  in  the  way  of  taxes. ^  They  urged 
with  considerable  force  that  the  financial  resources  of 
Eastern  Canada  were  limited  and  that  an  enormous  addi- 
tion to  the  public  debt  was  inadvisable.  The  Govern- 
ment, however,  pressed  forward  with  the  scheme,  and  soon 
two  rival  companies  were  incorporated  each  with  a  view 

*  Proclamation,  Dominion  Statutes  (1872),  cxxxii-ixxxv. 

*  The  history  of  the  various  turns  of  policy  are  available  in  Hansard 
for  the  years  1871  £f.  Valuable  sidelights  are  to  be  obtained  in  the  offi- 
cial Lives  of  Sir  John  A.  MacDonald,  Hon.  Alexander  Mackenzie,  Lord 
Strathcona  and  Mount  Royal,  the  Recollections  of  Sir  Charles  Tupper, 
and  the  Reminiscences  of  Sir  Richard  Cartwright.  Readers  of  the  latter 
will  notice  that  the  present  writer  differs  in  his  view  of  Sir  John  Mac- 
Donald's  motives  in  building  the  Canadian  Pacific  Railway  and  in  re- 
gard to  the  entrance  of  British  Columbia. 


38  CANADIAN  RAILWAY  RATES 

to  obtaining  the  contract  for  building  the  line.^  Hugh 
Allan,  the  wealthy  head  of  the  company  owning  the  Allan 
Line  of  steamers,  was  the  moving  spirit  behind  one  of  these 
companies,  the  Canadian  Pacific  Railway,  and  in  the  elec- 
tion of  1872  he  sought  to  buy  his  way  into  favor  by  placing 
large  sums  of  money  at  the  disposal  of  the  Conservative 
Party.  When  this  was  exposed  in  Parhament  it  unhorsed 
the  Government  and  brought  to  the  head  of  affairs  Alex- 
ander Mackenzie,  leader  of  the  Liberal  Party. 

In  opposition  the  Liberals  had  supplemented  their  cam- 
paign of  criticism  of  the  transcontinental  pohcy  of  the 
Conservatives  with  the  alternative  policy  of  a  Une  con- 
structed by  piecemeal  as  the  colonization  of  the  Western 
prairies  demanded.  They  suggested  the  building  of  a  line 
from  Manitoba  westward.  This  was  consonant  to  their 
view  that  the  finances  of  Canada  could  not  stand  the  ex- 
penditure necessary  for  at  once  laying  down  a  road  to  the 
Pacific  Coast.  They  had  particularly  objected  to  building 
a  line  through  the  difficult  rocky  country  north  of  Lake 
Superior.  Until  such  time  as  Canadian  trade  and  finances 
warranted,  as  a  party  in  power,  the  new  Government  now 
proposed  to  utilize  the  stretches  of  water  lying  between 
the  Eastern  and  Western  Provinces  so  as  to  give  a  com- 
bined water  and  rail  system  to  the  West  and  British 
Columbia.^  The  pohcy  met  with  little  success.  Negotia- 
tions with  British  Columbia  to  modify  the  agreement 
with  respect  to  the  time  set  for  the  completion  of  the  fine 
turned  out  badly.  British  Columbia  sent  her  Premier  to 
London  to  protest  against  delay.  ^  No  company  offered  to 
undertake  the  building  and  operating  of  the  line  from 
Winnipeg  to  Lake  Superior,  one  of  the  important  hnks 

1  The  Canadian  Pacific  Railway,  35  Vic,  c.  73;  the  Interoceanic  Rail- 
way, 35  Vic,  c  72  (1872). 

^  Mackenzie's  address  to  the  electors  of  Lambton  in  1874. 

'  Correspondence  relating  to  the  Canadian  Pacific  Railway.  Official 
Returns. 


THE  ERA  OF  TRANSCONTINENTALS  39 

necessary  for  the  utilization  of  the  lake  and  rail  route. ^ 
In  the  end  the  Government  had  to  place  two  hundred  and 
twenty -seven  miles  under  contract  and  proceed  to  its  con- 
struction as  a  public  work.  The  Pembina  branch,  south 
from  Winnipeg,  was  begun  also  in  1876  and  finished  in  1878. 
This  gave  Winnipeg  and  Manitoba  a  railway  outlet  via 
St.  Paul,  and  it  was  held  by  the  Government,  in  deference 
to  the  exigencies  of  party  pohtics,  that  this  was  a  good 
reason  why  rapid  construction  of  the  complete  Eastern 
line  was  not  an  imperative  necessity. ^  The  six  years  of 
Liberal  power  left  the  project  in  this  unsatisfactory  posi- 
tion. For  this  fact  the  Government  was  not  altogether 
to  blame.  Elements  over  which  it  had  no  control  had 
conspired  to  hamper  it  in  the  execution  of  its  pohcy. 

On  their  return  to  power  the  Conservatives  reaffirmed 
in  a  series  of  resolutions  their  original  plan  of  building  a 
line  without  delay  from  East  to  West.^  But  the  difficulty 
of  the  venture  which  had  embarrassed  the  preceding  Ad- 
ministration forced  them  for  a  short  time  to  continue  their 
predecessors'  policy  of  Government  construction.  In  the 
meantime  efforts  were  being  made  to  secure  a  company 
with  the  financial  backing  necessary  to  undertake  a  work 
of  this  magnitude.  At  length  in  December,  1880,  after 
lengthy  negotiations,  the  Government  submitted  to  Par- 
liament a  contract  with  the  Canadian  Pacific  Railway 
Company  to  build  a  road  from  Lake  Nipissing  to  the 
Pacific  Coast,  the  portion  already  constructed  to  be  taken 
over  as  part  of  the  system.  The  acceptance  of  this  con- 
tract initiates  the  second  period  in  the  history  of  the 

*  R.  W.  Scott  in  the  Senate.  Reported  in  the  Dominion  Register  and 
Review  (1879),  p.  119. 

^  "Now  the  route  is  thoroughly  established  and  well  patronized  and 
the  journey  from  Montreal  to  the  capital  of  Manitoba  via  Chicago  and 
St.  Paul  all  rail  may  be  made  in  four  or  five  days."  Mackenzie,  speaking 
to  his  amendment  giving  the  Liberal  policy.  Dominion  Register  and  Re- 
view (1879),  p.  120. 

*  May  10,  1879. 


40  CANADIAN  RAILWAY  RATES 

Pacific  Railway  scheme.  Sir  John  MacDonald  had  stated 
in  1872  that  it  was  the  intention  of  his  Government  to 
"be  Hberal"  with  the  company.^  He  kept  his  word,  for  the 
agreement  ^  provided  for  a  money  subsidy  of  $25,000,000 
and  a  land  subsidy  of  25,000,000  acres.  The  latter  grant, 
to  be  chosen  from  land  in  the  West  as  far  as  possible,  was 
to  lie  in  alternative  sections  twenty-four  miles  deep, 
checker-board  fashion,  along  the  line  of  the  road.  The 
company  was  given  the  right  to  locate  the  line  and  its 
branches  except  for  a  number  of  terminal  points.  This 
privilege,  valuable  in  the  extreme  because  it  permitted 
economic  reasons  in  some  degree  to  control  the  selection 
of  a  route,  was  interpreted  broadly.  Thus,  as  originally 
planned,  the  line  was  to  run  northwest  to  Edmonton,  but, 
when  the  Kicking  Horse  Pass  was  discovered  farther  south, 
permission  was  given  to  take  that  route.^ 

An  important  clause  of  the  agreement  shut  oflP  compe- 
tition from  the  United  States.*  It  was  provided  that  for 
twenty  years  no  line  of  railway  should  be  permitted  to  be 
constructed  in  the  Canadian  West  south  of  the  Canadian 
Pacific  Railway  except  under  conditions  that  virtually 
meant  that  this  territory  was  closed  to  all  except  to  the 
Canadian  Pacific.  This  was  directly  aimed  at  the  North- 
ern Pacific,  which  threatened  to  tap  the  country  from 
the  south,  but  also  in  a  large  way  at  all  those  lines  present 
and  prospective  that  Canadians  feared  would  lure  trade 
to  the  United  States.  Thus  we  have  the  old  struggle  for 
trade  extended  to  the  Western  plains  and  revealing  itself 
once  more  in  legislative  enactment. 

In  many  ways  the  line  was  made  a  favored  one.  Such 
privileges  as  freedom  from  taxation  and  the  remission  of 
customs  duties  on  construction   supplies  indicated   the 

^  Writing  to  Sir  John  Rose,  April  17, 1872.  Pope,  op.  cit.,  vol.  ii,  p.  189. 
«  44  Vic,  c.  1  (1881).  3  45  yic,  c.  53  (1882). 

*  "Except  such  lines  as  shall  run  s.w.  or  to  the  westward  of  s.w.  nor 
within  15  miles  of  latitude  49." 


THE  ERA  OF  TRANSCONTINENTALS  41 

heavy  price  the  Government  had  had  to  pay  for  putting 
through  its  poHcy.  The  only  safeguard  with  resi>ect  to 
tolls  was  a  provision  that  if  profits  exceed  ten  per  cent  of 
the  capital  invested  in  the  construction  of  the  line,  they 
might  be  reduced.  With  other  features  of  the  agreement 
we  need  not  concern  ourselves  because  they  do  not  relate 
to  the  problems  with  which  this  study  is  concerned. 

When  this  agreement  was  presented  to  Parliament  for 
ratification,  it  was  discussed  and  confirmed  on  a  strictly 
party  basis,  a  procedure  that  meant  it  received  a  minimum 
of  careful,  disinterested  criticism.  Moreover,  in  this  case 
the  opposition  were  more  than  usually  hampered  in  crit- 
icizing the  terms  of  the  bargain.  Their  avowed  policy 
was  that  of  piecemeal  construction.  Fundamentally  this 
policy  was  based  on  the  premise  that  a  trunk  line  would 
not  be  a  paying  proposition  for  many  years.  Therefore, 
if  the  line  promised  to  be  a  failure  from  the  standpoint  of 
pecuniary  return,  the  opposition  could  hardly  claim  that 
the  bargain,  with  its  large  grant  of  money  and  lands,  was 
unduly  generous  to  the  company.  Thus  the  Liberals,  by 
reason  of  their  main  position,  were  really  estopped  from  a 
very  searching  scrutiny  into  the  economy  of  the  plan.  The 
weight  of  their  attack  fell  upon  the  alleged  need  of  imme- 
diate construction.^  They  maintained  that  the  cost  of  the 
road  would  place  heavy  burdens  of  taxation  on  Eastern 
Canada  for  which  there  would  not  be  commensurate  re- 
turn because  of  the  relative  lack  of  development  of  the 
West.  In  the  pubUc  press  the  Toronto  Globe  insisted  that 
the  concessions  meant  the  creation  of  a  huge  railway  and 

^  "That  the  work  should  not  unduly  press  on  the  taxation  of  the  peo- 
ple, but  be  proceeded  with  in  a  manner  which  should  not  increase  the 
existing  rate  of  taxation.  .  .  .  This  is  the  keystone  of  the  position."  Hon. 
Edward  Blake,  December  14,  1880,  in  the  House  of  Commons.  In  mov- 
ing the  postponement  of  work  in  British  Columbia  he  said,  earlier  in  the 
session,  "but  in  the  early  days  and  for  a  long  time  the  road  will,  I  be- 
lieve, be  run  at  a  loss."  In  later  years  he  emphasized  the  monopoly 
aspect  of  the  question:  "If  the  Northwest  wants  anything  it  wants  rea- 
sonable rates."  February  5,  1884. 


42  CANADIAN  RAILWAY  RATES 

land  monopoly.^  This  phase  of  the  agreement  received 
some  notice  in  Parliament,  but  was  secondary  throughout 
to  the  question  of  the  danger  of  additional  taxation  through 
undue  haste  in  construction. ^  As  it  was  a  party  measure 
of  a  most  contentious  nature  the  opposition  were  unable 
to  assist  in  shaping  the  legislation.  Touching  the  dangers 
of  monopoly  the  Government  deemed  the  limitation  of 
profits  to  ten  per  cent  ample  safeguard  against  oppressive 
rates. 

The  agreement  having  been  confirmed  by  Parliament 
the  construction  of  the  road  was  undertaken  with  unpre- 
cedented vigor  and  the  last  spike  was  driven  in  the  main 
line  in  1885.  The  whole  distance  of  2906  miles  was  built 
five  years  before  the  contract  called  for  its  completion. 
The  "liberal"  terms,  however,  of  Sir  John  MacDonald 
were  not  sufiicient  to  finance  the  enterprise  and  the  Cana- 
dian Pacific  Railway  came  almost  every  year  to  Parlia- 
ment as  a  suppHant  for  further  assistance.^  As  the  for- 
tunes of  the  Government  were  staked  upon  the  success  of 
the  enterprise,  the  railway  did  not  go  away  empty.  His- 
tory with  grim  sarcasm  repeated  the  experience  of  Canada 
in  connection  with  the  Grand  Trunk.  According  to  the 
Canada  Statistical  Year  Book  for  1895  the  estimated  cost 
of  the  Grand  Trunk  was  $160,912,070,  the  actual  cost 
was  $335,645,007,  the  estimated  cost  of  the  Canadian 
Pacific  Railway  was  $179,122,730,  the  actual  cost  was 
$309,535,732." 

The  execution  of  the  Canadian  Pacific  Railway  Com- 
pany's contract  does  not,  of  course,  complete  the  history 
of  that  system.  While  constructing  the  main  line  its  pro- 
moters were  active  in  securing  control  of  desirable  con- 

1  The  Globe,  December  13.  1880. 

2  Cp.  Hon.  Wilfrid  Laurier,  December  21,  1880. 

3  47  Vic.  c.  1  (1884);  48  Vic,  c  57  (1885);  51  Vic,  c.  32  (1888).  By 
61  Vic,  c  32,  the  company  accepted  a  bond  guarantee  of  $15,000,000  for 
the  repeal  of  the  clause  shutting  out  competing  lines. 

*  Canada  Statistical  Year  Book  (1895),  p.  634. 


THE  ERA  OF  TRANSCONTINENTALS  43 

nections  in  Eastern  Canada.  In  the  plan  of  the  Dominion 
Government  the  transcontinental  line  was  to  end  at  Lake 
Nipissing,  to  which  point  it  was  expected  hnes  would  build 
from  Ontario  and  Quebec.^  In  1883  the  Canadian  Pacific 
Railway  obtained  extensions  to  Montreal  and  to  Brock- 
ville.  At  the  same  time  it  leased  the  Ontario  &  Quebec 
Railway,  582  miles  long,  which  gave  it  access  to  Lake 
Huron  and  enabled  it  to  tap  western  Ontario  as  far  as 
St.  Thomas.  In  1885  the  absorption  of  the  North  Shore 
Railway  let  it  into  Quebec,  while  the  construction  of  an 
extension  to  the  Ontario  &  Quebec  Railway  from  Smith's 
Falls  to  Montreal  gave  it  a  short  line,  independent  of  the 
Grand  Trunk,  from  Toronto  to  that  terminal.  When  the 
main  line  was  completed  in  1885  the  total  length  of  the 
Canadian  Pacific  Railway  system  was  4337.8  miles. 

The  period  that  followed  was  one  of  rapid  development 
for  the  system  at  many  points.  In  1887  a  short  line  from 
Montreal  across  a  corner  of  the  State  of  Maine  to  St. 
John,  New  Brunswick,  was  authorized.  This  gave  the 
latter  city  the  direct  connections  with  Ontario  and  Quebec 
it  had  tried  to  obtain  when  the  Intercolonial  was  laid  out. 
In  British  Columbia  the  same  year  an  extension  from 
Port  Moody  to  Vancouver  was  opened.  In  the  United 
States  arrangements  with  the  St.  Paul,  Minneapolis  & 
Sault  Ste.  Marie  and  the  Duluth,  South  Shore  &  Atlantic 
Railways  brought  these  important  lines  within  the  com- 
pany's scope  of  influence.  In  1890  a  western  Ontario  ex- 
tension was  completed  to  Detroit.  In  the  West  the  Regina 
&  Prince  Albert  line  and  the  Calgary  &  Edmonton  line 
were  leased.  In  1907  a  cut-ofiP  from  Sudbury  materially 
shortened  the  distance  from  Toronto  to  the  West,  while 
enabling  the  company  to  dispense  with  the  use  of  the 
Grand  Trunk  to  North  Bay.  Development  and  extension 
have  continued  unabated.  A  recent  advance  has  been  the 

^  The  statements  regarding  the  growth  of  the  Canadian  Pacific  Rail- 
way are  based  on  the  annual  reports  of  the  company. 


44  CANADIAN  RAILWAY  RATES 

company's  entrance  into  Nova  Scotia.  A  direct  line, 
roughly  following  the  route  originally  planned,  has  been 
built  from  Winnipeg  into  the  Edmonton  district.  The 
Crowsnest  Pass  Road  enables  it  to  enter  Spokane  and 
Portland,  facihtating  the  handling  of  transcontinental 
freight. 

In  1915  there  was  organized  the  Canadian  Pacific  Ocean 
Service  Company  to  take  over  the  ocean  steamship  busi- 
ness, including  the  famous  Allan  Line  Steamship  Com- 
pany. In  addition  to  the  Allan  Line  fleet  the  company 
owns  ninety-one  ocean,  lake,  and  river  steamers.  The 
company  also  owns  and  operates  seventeen  hotels. 

On  December  31,  1916  the  Canadian  Pacific  operated 
a  mileage  of  13,767.9  (1500.36  miles  are  double-tracked). 
To  this  must  be  added  the  mileage  of  the  Minneapolis, 
St.  Paul  &  Sault  Ste.  Marie  Railway,  4227.8,  and  of  the 
Duluth,  South  Shore  &  Atlantic  Railway,  624.6,  or  a  total 
effective  control  of  18,620.3  miles.  The  company's  assets 
stand  at  $986,768,543.90;  of  this  amount  $117,761,364.41 
are  listed  as  inactive  assets  and  include  nearly  6,000,000 
acres  of  agricultm-al  lands  in  the  prairie  Provinces,  of 
which  about  600,000  acres  are  irrigated  lands.  The  average 
sale  price  of  unirrigated  land  for  the  half-year  ending 
December  31,  1916,  was  $15.18  per  acre;  of  irrigated  land, 
$49.78  per  acre.  Further,  the  company  has  large  holdings 
in  British  Columbia,  as  well  as  valuable  coal  and  timber 
lands,  and  natural  gas  and  petroleum  rights.  Its  share 
capital  amounts  to  $340,681,921.12,  and  it  has  a  bonded 
debt  of  $231,934,882.10  ($52,000,000  are  m  6  per  cent  note 
certificates).^  The  company  early  seized  a  commanding 
position  among  Canadian  railroads,  and  the  growth  and 
prosperity  of  the  Dominion,  particularly  of  the  West,  has 
contributed  greatly  to  its  strength. 

§  3.  The  Canadian  Pacific  Railway  is  the  only  trans- 
continental line  in  Canada  that  may  be  said  to  be  operat- 
1  Report  for  the  half-year  ending  December  31,  1916. 


THE  ERA  OF  TRANSCONTINENTALS  45 

ing  on  a  normal  basis.  The  Grand  Trunk  Pacific  Railway, 
from  Winnipeg  to  the  Pacific  Coast,  and  the  National 
Transcontinental  Railway  from  Winnipeg  to  Moncton, 
form  a  second  line.  Although  designed  to  be  operated  by 
one  company,  both  divisions  are  operated  separately,  the 
former  by  the  Grand  Trunk  Pacific  Railway  Company, 
the  latter  by  the  Dominion  Government.  In  the  case  of 
the  Canadian  Northern  Railway,  while  in  1914  the  main- 
line track  was  completed  from  Quebec  to  Port  Mann, 
British  Columbia,  the  whole  has  only  recently  come  into 
operation.^  Financially  both  lines  are  in  that  condition, 
so  familiar  to  the  student  of  Canadian  railways,  which 
necessitates  frequent  recourse  to  Parliament  for  assistance. 
These  lines,  however,  are  already  well  intrenched  in  the 
West  as  traffic  factors  and  are  able  to  offer  both  through 
and  combined  water  and  rail  accommodation  to  the  East. 
This  fact  makes  necessary  their  inclusion  in  the  present 
sketch,  although  their  history  is  short  and  incomplete. 

The  Grand  Trunk  Railway  viewed  with  jealous  surprise 
the  rapid  growth  of  the  Canadian  Pacific  Railway,  and 
when  the  latter  began  to  encroach  upon  its  Ontario  terri- 
tory met  the  advance  with  active  hostility.  Indeed,  it  is 
claimed  that  it  was  a  "bear"  movement  in  which  Grand 
Trunk  financiers  were  interested  that  so  drove  down  the 
value  of  Canadian  Pacific  stock  in  1883  that  the  Canadian 
Government  was  compelled  to  come  to  its  protege's  rescue 
with  guarantees  that  reassured  investors. ^  The  opposition 
of  the  Grand  Trunk,  however,  did  not  seriously  retard  the 
growth  of  the  young  and  vigorous  Canadian  Pacific,  and 
the  older  line  was  forced  to  witness  the  development  of  a 
powerful  rival  which  competed  with  it  in  western  Ontario 
territory  and  had  an  independent  reserve  of  strength  in 
an  increasingly  valuable  traffic  to  the  Northwest. 

1  Since  1914. 

*  Morgan's  Annual  Register,  p.  112.  C.P.R.  circular  to  shareholders, 
December  29,  1883. 


46  CANADIAN  RAILWAY  RATES 

The  moral  of  the  Canadian  Pacific  was  lost  neither  upon 
the  Grand  Trunk,  whose  president  of  an  earlier  date  had 
brushed  aside  ^  overtures  to  build  the  Pacific  road,  nor 
upon  Sir  Wilfrid  Laurier,  whose  party  in  the  first  instance 
had  underestimated  the  possibilities  of  the  West.  "When, 
therefore,  the  marvelously  rapid  development  of  Mani- 
toba, Saskatchewan,  and  Alberta  at  the  beginning  of  the 
last  decade  began  to  task  the  transportation  facilities  and 
the  equipment  of  the  Canadian  Pacific  Railway,  the  pro- 
ject of  a  second  great  transcontinental  line  was  conceived. 
The  scheme  involved  an  agreement  between  the  Grand 
Trunk  Railway  and  the  Dominion  Government.  Sir  Wil- 
frid Laurier  and  his  party  went  to  the  country  on  this 
issue  in  1904,  and  once  again  the  people  of  Canada  sanc- 
tioned large  expenditures  for  the  construction  of  railways. 
The  project  was  endorsed  on  the  general  argument  that 
it  would  promote  the  development  of  the  Northwest  by 
furnishing  additional  railway  facilities  which  would  also 
be  a  line  independent  of  the  Canadian  Pacific  Railway. 
In  many  parts  of  the  West  there  was  considerable  feeling 
that  the  Canadian  Pacific  was  using  its  power  to  charge 
unduly  high  freight  rates.  Along  with  these  considera- 
tions and  more  specifically  it  was  urged  that  if  this  step 
were  not  taken,  very  much  traflfic  would  necessarily  be 
lost  to  Canada  by  being  carried  on  American  lines.  The 
following  clause  in  the  agreement,  later  confirmed,  covers 
the  whole  point:  — 

It  is  hereby  declared  and  agreed  between  the  parties  to  this 
agreement  that  the  aid  herein  provided  for  is  granted  by  the 
Government  of  Canada  for  the  express  purpose  of  encouraging 

^  "If  you  omit  the  clause  providing  for  a  line  around  the  north  shore 
of  Lake  Superior  to  Eastern  Canada  1  shall  be  pleased  to  lay  the  matter 
before  my  board  of  directors.  Otherwise  they  would  throw  it  into  the 
waste-paper  basket." 

"We  must  have  a  through  line;  I  assured  him  in  parting."  Sir  Charles 
Tupper's  Recollections  (an  interview  with  Sir  Henry  Tyler,  president  of 
the  Grand  Trunk),  p.  139. 


THE  ERA  OF  TRANSCONTINENTALS  47 

the  development  of  Canadian  trade  and  the  transportation  of 
goods  through  Canadian  channels.  The  company  accepts  the  aid 
on  these  conditions  and  agrees  that  all  freight  originating  on  the 
line  of  the  railway  or  its  branches,  not  specifically  routed  other- 
wise by  the  shipper,  shall,  when  destined  for  points  in  Canada, 
be  carried  entirely  on  Canadian  territory,  or  between  Canadian 
inland  ports,  and  that  the  through  rate  on  export  traffic  from 
the  point  of  origin  to  the  point  of  destination  shall  at  no  time  be 
greater  via  Canadian  ports  than  via  United  States  ports,  and 
that  all  such  traffic  not  specifically  routed  otherwise  by  the  ship- 
per shall  be  carried  to  Canadian  ocean  ports. 

The  agreement^  provided  that  the  road  was  to  consist 
of  two  sections  from  Moncton,  New  Brunswick,  to  Winni- 
peg, 1800  miles,  and  from  Winnipeg  to  the  Pacific,  1756 
miles.  The  eastern  division,  called  the  National  Trans- 
continental Railway,  was  to  be  constructed  by  the  Gov- 
ernment of  Canada,  and  leased  for  fifty  years  to  the  Grand 
Trunk  Pacific  for  operation.  The  western  division,  the 
Grand  Trunk  Pacific,  was  to  be  built  by  that  company 
under  a  bond  guarantee  of  three  quarters  of  the  cost  of 
construction.  This  was  limited  to  a  cost  not  exceeding 
$13,000  per  mile.  Under  an  implement  clause  the  Gov- 
ernment agreed  to  make  up  the  difference  between  the 
amount  realized  in  certain  bonds  and  their  par  value. 
In  the  case  of  the  mountain  division  the  Government 
further  agreed  to  pay  the  bond  interest  for  seven  years. 
The  Grand  Trunk  Pacific  is  controlled  by  the  Grand 
Trunk  Railway,  so  that  the  design  was  that  ultimately 
the  whole  system  should  come  under  the  control  of  that 
company. 

The  estimated  cost  of  the  undertaking  has  fallen  far 
short  of  the  actual  expenditure  that  has  been  found  neces- 
sary.2    The  expenditure  on  the  eastern  division  up  to 

1  3  Edw.  VII  (1903),  c.  122. 

*  Hon.  W.  S.  Fielding  stated  on  July  11,  1908,  that  the  road  would 
cost  Canada  $38,769,126.  Speech  on  the  National  Transcontinental 
Railway  in  the  House  of  Commons. 


48  CANADIAN  RAILWAY  RATES 

March  31,  1915,  was  $152,802,746,  while  aid  under  the 
implement  clause  of  the  bond  guarantee  given  in  1912 
amounted  to  $4,994,417.1  The  Grand  Trunk  Pacific  is 
operating  between  Winnipeg  and  Prince  Rupert  2228.91 
miles.  The  eastern  division,  which  was  completed  in  No- 
vember, 1913,  has  not,  however,  been  taken  over  by  the 
Grand  Trunk  Pacific,  but  is  being  operated  by  the  Domin- 
ion Government.  The  future  of  the  whole  scheme  at  the 
present  time  remains  to  be  determined.  The  strain  of 
financing  a  Western  line  has  proved  to  be  too  heavy  for  the 
Grand  Trunk  Railway,  without  even  assuming  the  addi- 
tional burden  involved  in  operating  the  eastern  portion 
of  the  route  while  in  its  developmental  stage.  In  Decem- 
ber, 1915,  Alfred  W.  Smithers,  chairman  of  the  Grand 
Trunk  Railway  Company,  addressed  a  letter  to  the  Prime 
Minister  of  Canada,  suggesting  that  the  Dominion  Gov- 
ernment should  take  over  the  Grand  Trunk  Pacific,  "with 
all  its  branch  lines,  development  company  and  other  sub- 
sidiary companies,  with  all  the  assets,  the  Grand  Trunk 
Railway  Company  to  surrender  to  the  Government  the 
whole  of  the  common  stock  of  the  Grand  Trunk  Pacific 
Railway  Company  on  condition  of  the  Government  re- 
lieving the  Grand  Trunk  Railway  Company  of  all  liabili- 
ties in  respect  of  the  Grand  Trunk  Pacific  Railway  Com- 
pany," etc.,  and  repaying  to  the  Grand  Trunk  Railway 
Company  any  money  advanced  by  the  Grand  Trunk  Rail- 
way Company.  The  Dominion  Government  has  taken 
steps  to  make  a  complete  survey  of  the  whole  railway  situ- 
ation in  Canada,  but  in  the  meantime,  at  the  session  of 
1916,  granted  a  loan  of  $8,000,000  to  assist  the  Grand 
Trunk  Pacific. 

§  4.  The  third  transcontinental  railroad,  known  as  the 
Canadian  Northern,  began  as  an  amalgamation  to  take 
over  a  couple  of  small  Manitoba  railways  in  1898.^  Under 
the  direction  of  two  ambitious  railroad  builders,  Messrs. 

*  Canada  Year  Book  (1915),  p.  465  ff.        ^  62-63  Vic,  c.  57  (1900).  j 


THE  ERA  OF  TRANSCONTINENTALS  49 

Mackenzie  and  Mann,  the  company  leased  several  other 
short  lines  in  Manitoba  and  formed  the  nucleus  of  a 
system.^  In  1902  power  was  obtained  to  build  eastward 
toward  Ottawa  and  Montreal,  and  westward,  by  Ed- 
monton and  the  Skeena  River,  to  the  Pacific  Coast.  ^ 
Thus,  while  the  Grand  Trunk  Railway  was  maturing  plans 
to  build  into  the  rich  and  rapidly  developing  agricultural 
areas  of  the  West,  the  Canadian  Northern  Railway  was 
planning  to  secure  Eastern  outlets.  Although  the  logical 
outcome  of  this  state  of  affairs  should  have  been  a  fusion 
of  these  interests,  unfortunately  this  did  not  take  place. 
The  Grand  Trunk  Railway,  however,  secured  the  finan- 
cial support  of  the  Canadian  Government  at  the  price 
of  agreeing,  as  we  have  seen,  to  a  national  Grand  Trans- 
continental line  to  Canadian  maritime  ports.  In  spite  of 
this  the  Canadian  Northern  did  not  relinquish  its  design 
to  build  eastward,  though  for  ten  years  the  history  of  the 
road  largely  centered  around  its  feverish  construction  ac- 
tivity in  the  West.  To  a  large  degree  excellence  of  road- 
bed and  equipment  was  sacrificed  in  the  determination  to 
preempt  raU  facilities  into  new  territory  opening  for  set- 
tlement. As  a  result  of  this  policy  the  company  has  over 
five  thousand  miles  of  line  in  operation  in  the  prairie 
Provinces  apart  from  its  outlet  to  the  head  of  navigation 
at  Port  Arthur  on  Lake  Superior.  In  British  Columbia  it 
has  pushed  through  the  Rocky  Mountains  at  Yellowhead 
Pass  and  has  completed  its  line  from  that  point  to  Van- 
couver. 

In  the  meantime  control  was  obtained  of  certain  lines  in 
Eastern  Canada.  This  paved  the  way  for  building  the 
connection  link  in  the  system  between  Montreal  and  Port 
Arthur,  and  in  1911  guarantees  were  secured  from  the 
Dominion  Government  for  a  bond  issue  that  enabled  this 
section  of  the  line  to  be  built. ^  The  present^  length  of  the 

1  1  Edw.  VII,  c.  52  (1901).  2  2  Edw.  VII,  c.  50  (1902). 

»  1-2  Geo.  V,  c.  6.  *  April  1,  1917. 


50  CANADIAN  RAILWAY  RATES 

Canadian  Northern  Railway  system  is  9296  miles.  Its 
system  extends  from  Quebec  to  Vancouver,  and  taps 
Duluth,  Toronto,  Ottawa,  and  Montreal,  covers  the 
prairie  Provinces  with  a  large  number  of  branches,  and 
has  the  Halifax  and  Southwestern  Railway  in  Nova  Sco- 
tia. The  company  is  so  weak  financially,  however,  that  at 
recent  sessions  of  Parliament  it  has  had  to  secure  further 
aid.  In  1914  ^  a  bond  issue  of  $45,000,000  at  4  per  cent 
was  guaranteed  and  at  the  session  of  1916  it  received  a  loan 
of  $15,000,000.  Just  as  in  the  case  of  the  Grand  Trunk 
Pacific  Railway,  this  loan  has  been  made  to  meet  urgent 
liabilities,  while  the  Government  is  completing  its  survey 
of  the  whole  Canadian  railway  problem.  The  companies 
comprising  the  Canadian  Northern  were  recently  con- 
solidated into  the  Canadian  Northern  Railway  System 
and  the  first  annual  report  submitted  for  the  year  ending 
June  30,  1915,  showed  net  earnings  of  $6,623,291.88, 
against  fixed  charges  of  $8,263,574.99,  or  a  net  loss  or 
deficit  of  $1,640,283.11;  for  the  year  ending  June  30,  1916, 
net  earnings,  $9,373,530.54;  fixed  charges,  $9,621,657.70; 
net  loss  or  deficit,  $248, 127.1 6.2 

The  difiiculties  of  the  financial  situation  arising  out  of 
the  construction  of  the  two  later  transcontinental  lines, 
together  with  the  trafiic  problems  their  presence  in  the 
competitive  field  entails,  led  the  Dominion  Government 
in  July,  1916,  to  appoint  a  Royal  Commission  to  inquire 
into  railways  and  transportation  in  Canada.  This  Com- 
mission as  originally  named  consisted  of  A.  H.  Smith, 
Sir  H.  L.  Drayton,  and  Sir  George  Paish.  Owing  to  ill- 
health  Mr.  Paish  was  unable  to  serve  and  W.  M.  Acworth 
was  appointed  in  his  place.  The  subject-matter  of  the 
reference  to  the  commission  is  as  follows :  — 

1.  The  general  problem  of  transportation  in  Canada. 

2.  The  status  of  each  of  the  three  transcontinental  railway 
systems,  that  is  to  say,  the  Canadian  Pacific  Railway  Sys- 

1  4  Geo.  V.  c.  20. 

*  Annual  Reports,  Canadian  Northern  Railway  System. 


THE  ERA  OF  TRANSCONTINENTALS  51 

tem,  the  Grand  Trunk  Railway  System  (including  the 
Grand  Trunk  Pacific  Railway  and  the  Grand  Trunk  Rail- 
way and  their  several  branches)  and  the  Canadian  North- 
ern Railway  System,  having  special  reference  to  the  fol- 
lowing considerations :  — 

(a)  The  territories  served  by  each  system  and  the  service 
which  it  is  capable  of  performing  in  the  general  scheme 
of  transportation; 
(6)  Physical  conditions,  equipment  and  capacity  for  han- 
dling business; 

(c)  Methods  of  operation; 

(d)  Branch  lines,  feeders  and  connections  in  Canada; 

(e)  Connections  in  the  United  States; 

(/)   Steamship  connections  on  both  oceans; 

(g)  Capitalization,  fixed  charges  and  net  earnings  having 
regard  to  (1)  present  conditions,  and  (2)  probable 
future  development  with  increase  of  population. 

3.  The  reorganization  of  any  of  the  said  railway  systems,  or 
the  acquisition  thereof  by  the  State;  and  in  the  latter  case 
the  most  eflfective  system  of  operation,  whether  in  connec- 
tion with  the  Intercolonial  Railway  or  otherwise. 

4.  Generally  speaking,  all  matters  which  the  members  of  the 
Board  may  consider  pertinent  or  relevant  to  the  general 
scope  of  the  Inquiry. 

At  time  of  writing  ^  the  Commission  has  not  reported, 
but  it  is  evident  that  Canada  is  on  the  verge  of  a  new 
period  in  the  history  of  her  transportation  pohcy.  Judging 
from  the  past  we  may  expect  that  amid  considerable  con- 
troversy and  difference  of  point  of  view  the  solution  fin- 
ally adopted  will  lie  along  national  rather  than  strictly 
economic  lines. 

»  AprU  1, 1917. 


CHAPTER  IV 

RESULTS   OF   THE   CANADIAN   TRANSPORTATION 
POLICY 

§  1.  In  the  preceding  chapters  we  have  traced  the  rise 
and  progress  of  systems  of  transportation  in  Canada.  We 
have  seen  that  the  Canadian  Government's  poHcy  from 
the  beginning,  of  extending  aid  and  encouragement,  has 
been  a  most  important  factor  in  their  development.  With 
the  exception  of  the  Canadian  Northern  Railway,  which 
has  recently  received  assistance  from  the  Government,  and 
now  has  the  status  of  an  adopted  child  in  the  family,  the 
transportation  systems  of  Canada  have  come  into  exist- 
ence not  only  under  the  protective  segis  of  the  Govern- 
ment, but  with  its  active  help.  If  there  is  one  thing  clear 
in  the  history  of  transportation  in  Canada,  it  is  that  the 
people  of  Canada,  through  their  Parliamentary  repre- 
sentatives, have  stood  behind  every  large  transportation 
scheme  that  has  succeeded  in  establishing  itself.  And 
it  is  undoubtedly  true  that  if  this  had  not  been  the  fact 
the  Grand  Trunk  Railway  Company's  transcontinental 
project  would  have  been  less  expensive  in  execution,  more 
modest  in  scope,  and  more  gradual  in  realization.  With 
respect  to  the  Canadian  Northern,  while  it  did  not  re- 
ceive in  the  same  striking  manner  the  support  of  the  Fed- 
eral Government,  it  is  no  less  true  that  if  it  had  not  been 
granted  generous  financial  assistance  from  both  the  Fed- 
eral and  from  five  Provincial  Governments,^  its  plans  for 
a  transcontinental  line  would  not  have  been  carried  out 
so  rapidly. 

^  Sessional  Paper  No.  282a,  Financial  Statements  of  the  Canadian  North' 
ern  Railway  System  (April  15,  1916),  p.  6. 


RESULTS  OF  TRANSPORTATION  POLICY        53 

The  aftermath  of  this  railroad  building  is  now  at  hand. 
As  has  been  indicated,  grave  financial  difficulties  face 
both  the  Grand  Trunk  Pacific  Railway  Company  and  the 
Canadian  Northern  Railway  System.  The  latest  step  of 
the  Dominion  Government,  as  we  have  seen,  has  been  the 
appointment  of  a  Royal  Commission  of  Enquiry  into  the 
Canadian  railway  situation  with  a  view  to  a  final  solution 
of  the  pressing  problems  now  demanding  attention.  If  the 
analysis  of  causes  in  the  preceding  pages  is  correct,  this 
active  interest,  both  in  the  past  and  at  present,  has  been 
and  is  due  principally  to  national  considerations.  It  has 
been  shown  to  have  had  several  phases;  an  attempt  to  cap- 
ture traffic  flowing  eastward  from  the  Middle  Western 
States,  a  system  of  railways  for  mihtary  purposes  in  case 
of  American  invasion,  the  preemption  of  Western  territory 
lest  it  be  won  by  the  United  States,  the  retention  of  West- 
ern Canadian  traffic  to  Canadian  trade  channels  —  in  these 
terms  the  causes  of  governmental  assistance  to  transpor- 
tation development  must  be  given. 

This  conclusion  does  not  deny  the  influence  of  purely 
economic  forces.  They  were  a  factor  and  an  important 
factor  in  the  situation,  but  the  point  is,  purely  economic 
forces  were  not  dominant  and  controlling.  In  the  case  of 
all  these  enterprises,  except  the  Rideau  Canal  and  the 
Intercolonial  Railway,  there  was  a  lively  appreciation  of 
economic  advantages  to  accrue  to  Canada,  but  the  active 
assistance  of  the  Government  is  to  be  explained  only  on 
the  basis  of  the  fact  that  purely  economic  considerations 
would  not  be  sufficient  to  build  the  desired  lines  at  the 
time  nor  in  the  direction  that  national  interests  required. 
Roads,  due  to  economic  forces,  were  being  built,  but  they 
threatened  to  divert  the  traffic  to  American  ports  and  to 
American  cities.  The  feeling  of  nationality  that  this  dan- 
ger aroused  had  its  answer  in  the  Canadian  roads,  built 
to  protect  the  integrity  of  Canada  by  protecting  Canadian 
trade  and  commerce.   In  this  degree  and  in  this  way  the 


64  CANADIAN  RAILWAY  RATES 

economic  factor  has  entered  into  the  situation.  It  has  been 
a  considerable  force  in  moulding  national  policy.  But  in 
both  the  earlier  and  later  eras  of  transportation  develop- 
ment in  Canada,  the  economic  factor  has  been  lifted  up 
and  transmuted  into  terms  of  national  power  and  self- 
suflficiency.  Transportation  policy  has  not  been  viewed 
merely  from  the  standpoint  of  commercial  and  economic 
convenience.  In  the  final  outcome  these  national  ideas 
have  dictated  the  course  of  development. 

It  remains  now  to  consider  the  salient  characteristics 
of  the  transportation  facilities  of  Canada  viewed  as  a 
whole.  A  survey  of  the  field  reveals  two  closely  woven  net- 
works of  lines.  The  development  of  a  railroad  net  in  the 
East,  in  close  conjunction  with  waterways,  has  already 
been  referred  to.  The  industrial  growth  of  Ontario  has 
continued  the  process.  Out  of  35,582  miles  of  railway  lines 
in  Canada  in  1914,  10,702  were  located  in  Ontario.^  In 
the  Northwest  the  competition  between  the  three  trans- 
continental systems  for  territory  and  the  absolute  reliance 
of  the  country  upon  railway  service  ^  have  resulted  in  the 
development  of  a  net  spread  over  300,000  square  miles. 
In  1915  the  Provinces  of  Manitoba,  Saskatchewan,  and 
Alberta  contained  12,999  miles.^  While  much  of  this  mile- 
age has  been  buUt  by  the  transcontinental  companies  in 
the  development  of  their  branch  lines,  the  pressing  ne- 
cessity for  roads  led  to  the  construction  of  a  number  of 
independent  short  lines.  As  in  the  Eastern  Provinces  the 
history  of  these  roads  may  be  epitomized  in  a  sentence: 
they  were  promoted  and  built  to  satisfy  local  interests  and 
afterwards  absorbed  by  the  transcontinental  fines  in  their 
struggle  for  territory.  As  a  result  of  this,  while  all  avail- 
able territory  where  traffic  is  likely  to  develop  has  not  been 
exploited,  still  the  three  great  lines  touch  practically  every 

1  Canada  Year  Book  (1915),  p.  467. 

^  A  certain  amount  of  logs  is  floated  down  the  rivers  for  lumber,  but 
boat  service  has  practically  passed  out  of  existence  within  this  area. 
3  Canada  Year  Book  (1915),  p.  467. 


RESULTS  OF  TRANSPORTATION  POLICY        55 

important  point.  They  cross  and  intercross  each  other  at 
many  places. 

The  Western  expansion  in  shape  resembles  a  partly 
opened  fan.  The  outer  points,  not  far  from  the  foothills 
of  the  Rocky  Mountains,  are  Macleod,  Calgary,  Edmon- 
ton, and  Athabasca  Landing.  Almost  in  a  line  in  the  mid- 
west are  Regina,  Saskatoon,  and  Prince  Albert.  Still 
farther  east  are  Brandon  and  Dauphin.  Finally  all  lines 
converge  on  Winnipeg,  the  end  of  the  handle.  Unlike  the 
Eastern  net,  in  the  West  there  are  no  complications  pro- 
duced by  waterways.  The  development  of  the  country  is 
bound  up  wholly  with  the  policy  of  the  railroads. 

Of  great  importance  in  the  rate  situation  is  the  absence 
of  traffic-producing  territory  between  Fort  William  and 
Sudbury.  Between  the  Northwest  and  the  East  —  that 
is,  between  the  great  agricultural  and  manufacturing  cen- 
ters of  the  Dominion  —  lies  a  vast,  undeveloped  area 
north  of  Lake  Superior.  Canada  has  no  "middle  States." 
Instead  of  East  becoming  West  by  insensible  gradations, 
through  territory  rich  in  traffic,  there  is  a  great  expanse, 
which  must  be  traversed,  of  difficult  country,  with  clima- 
tic extremes  and  with  practically  no  traffic.  The  country 
is  rocky  and  wild.  It  has  been  burnt  over,  and  is  now 
covered  by  a  shght  growth  of  scrub,  too  small  and  too 
stunted  for  market  purposes.  Time  may  change  this  condi- 
tion of  affairs,  but  at  present  this  region  furnishes  prac- 
tically no  traffic.  On  the  Grand  Trunk  Pacific  line,  farther 
north  than  on  the  Canadian  Pacific  or  Canadian  Northern, 
a  considerable  clay  belt  is  reported.  In  time  this  will  prob- 
ably make  a  good  agricultural  district.  But  here,  too, 
though  with  more  promise,  railway  traffic  is  a  hope  of  the 
future.  This  part  of  the  transcontinental  routes  neces- 
sarily increases  the  proportion  of  indirect  costs,  for  while 
the  lines  must  be  maintained  as  essential  links  in  the  re- 
spective systems,  they  do  not  contribute  their  due  share 
of  the  revenue.   The  great  significance  of  this  feature  of 


56  CANADIAN  RAILWAY  RATES 

the  transportation  systems  of  Canada  has  repeatedly 
appeared  in  connection  with  a  number  of  Western  rate 
cases. 

Another  marked  feature  of  Canadian  railway  territory 
is  that  it  is  over  three  thousand  miles  in  length,  but  rela- 
tively is  very  narrow.^  The  distance  from  Macleod  to 
Athabasca  Landing  is  397  miles.  A  glance  at  the  map  will 
show  that  this  measures  roughly  the  breadth  of  the  rail- 
road area  on  the  plains. ^  In  the  East  the  distance  from 
Toronto  to  Cochrane,  quite  the  greatest  north-to-south 
distance,  is  480  miles,  and  the  traffic  strip  continues  to 
narrow  until  it  bends  southward  to  the  Maritime  Provinces. 
As  a  consequence  there  are  no  independent  cross-lines  of 
importance  in  Canada.  The  great  traffic  route  is  east  and 
west.  The  gateway  cities  of  Canada  are  not  distinctively 
on  the  American  border  with  their  owti  transportation 
lines  leading  therefrom  into  the  interior.  The  gateway 
cities  of  Canada  in  the  main  are  at  convenient  points  of 
transshipment  along  the  East  and  West  routes,  and  their 
proximity  to  the  American  boundary  is  largely  a  matter 
of  accident.  Of  course,  it  is  possible  that  the  development 
of  the  Hudson's  Bay  route  may  change  decisively  the  situa- 
tion, or  the  removal  of  tariff  disabilities  enable  the  Ameri- 
can lines  to  compete  more  effectively,  but  at  present  the 
three  transcontinentals  control  the  Canadian  rail  trans- 
portation situation  from  Vancouver  to  Halifax.  The 
combined  length  of  these  three  lines  is  approximately  over 
ninety  per  cent  of  the  whole  railroad  mileage  in  the  Do- 
minion and  their  activity  in  construction  has  been  contin- 
ually increasing  the  proportion.^    In  one  respect,  how- 

^  The  figures  given  for  the  various  distances  mentioned  are  taken  from 
the  oflBcial  statements  of  the  various  companies. 

'  The  Edmonton-Dunvegan  and  British  Colmnbia  Railway  is  building 
from  Edmonton  to  Dunvegan  and  Peace  River  Landing  on  the  Peace 
River,  approximately  a  hundred  miles  farther  north  than  Athabasca 
Landing. 

3  Between  January  1, 1900,  and  April  1, 1909,  of  117  charters  granted, 
26  lapsed,  and  only  455.5  miles  were  built  independently  of  the  trunk  lines. 


RESULTS  OF  TRANSPORTATION  POLICY        57 

ever,  the  transcontinental  lines  have  not  complete  control 
over  the  East  and  West  traffic  situation.  The  system  of 
waterways  from  tidewater  to  Fort  William,  built  up  as  we 
have  seen  to  serve  another  purpose,  justifies  itself  to  a 
large  degree  through  its  influence  upon  East  and  West 
traffic.  Nor  must  the  influence  of  this  factor  in  the  case 
of  purely  Eastern  traffic  be  forgotten.  Here  it  is  sufficient 
to  note  that  the  narrowness  of  the  traffic-producing  strip 
enables  it  to  exert  its  maximum  effect. 

The  most  striking  feature,  however,  in  the  transcon- 
tinental situation  is  the  sohdly  established  position  of  the 
Canadian  Pacific  Railway.  WeU  equipped,  substantially 
built,  weU  located  for  through  traffic,  with  valuable  routes 
and  considerable  financial  strength,  the  Canadian  Pacific 
Railway  dominates  the  Western  freight  situation.^  That 
primacy  may  not  be  of  long  continuance,  for,  although  the 
Grand  Trunk  Pacific  and  the  Canadian  Northern  lack  the 
Canadian  Pacific's  strength  and  equipment,  they  are  able 
to  compete  now  for  Western  traffic.  The  real  struggle  be- 
tween systems  lies  in  the  future.  This  holds  true  even 
though  financial  difficulties  may  force  considerable  modi- 
fication in  the  organization  of  the  Grand  Trunk  Pacific 
Railway  Company  and  of  the  Canadian  Northern  Rail- 
way System.  The  financial  organization  may  change,  but 
the  location  of  the  lines  and  physical  equipment  wil) 
scarcely  be  relinquished  or  changed  except  for  the  better. 
At  present  the  older  road  is  in  the  favored  position,  but 
the  great  possibilities  locked  up  in  the  development  of  the 
wide  expanse  of  territory  served  by  the  other  lines  does 
not  mean  that  this  will  necessarily  continue  to  be  the  case. 

The  outstanding  characteristics  of  Canadian  traffic 
conditions  appear  to  be  the  presence  of  two  well-defined 
traffic  centers,  one  in  the  East  and  the  other  in  the  West, 

^  The  Canadian  Pacific  carries  considerable  through  freight  from  East- 
ern American  points  to  Western  American  points.  This  traffic,  however, 
does  not  enter  into  the  question  of  rate-making  in  Canada. 


58  CANADIAN  RAILWAY  RATES 

separated  by  an  immense  undeveloped  area,  a  large  part 
of  which  probably  never  will  be  valuable  as  a  source  of 
freight.  To  this  must  be  added  waterway  competition 
to  an  exceptional  extent;  the  absence  of  independent  cross- 
roads; intimate  international  relationships;  an  extremely 
long,  narrow  field  of  traffic  operations;  and  the  centrali- 
zation of  facilities  in  three  companies,  of  which  one  at  the 
present  time  occupies  the  position  of  dominance. 

§  2.  These  features  suggest  a  rate  structure  of  consid- 
erable complexity.  The  conditions  of  traffic  must  be  ad- 
justed to  the  extent  of  the  territory  with  its  diversity  of 
agricultural  and  industrial  pursuits.  On  the  other  hand, 
the  control  of  traffic  by  a  few  companies  is  an  element  in 
favor  of  simplicity  and  uniformity  of  classification.  The 
system  as  built  up  is  comparatively  simple  in  this  latter 
respect.  One  classification  system  holds  for  all  items  of 
freight  movement  in  Canada,  except  in  the  case  of  goods 
entering  the  Yukon  district  and  in  the  case  of  a  few  goods 
which  for  one  reason  or  another  follow  American  classi- 
fication. The  various  articles  of  freight  fall  regularly  into 
ten  numbered  classes.  Added  to  this  above  first  class 
there  is  a  progression  of  six  classes,  viz.,  l|,  D-1  (double- 
first  class),  2|-1,  3-1,  3|-1,  and  4-1.  There  are  thus  six- 
teen classes  in  all.  This  system  of  classification  is  known 
as  the  "Canadian  Classification"  and  is  issued  by  the 
Canadian  Freight  Association,  which  represents  raihoads 
operating  in  Canada.  The  present  issue  of  the  Canadian 
Classification  contains  approximately  seven  thousand 
items. 

It  must  be  noted  that  uniform  classification  of  articles 
of  freight  movement  does  not  mean  that  a  commodity 
classified  in  a  given  class  will  be  charged  the  same  rate  for 
carriage  a  given  distance  in  any  part  of  Canada.  The 
charge  for  carriage  would  be  a  question  of  rates.  This  is 
one  of  classification.  Rates  in  different  parts  of  Canada 
are  not  uniform.   Mileage  rates  vary  in  different  parts  of 


RESULTS  OF  TRANSPORTATION  POLICY        59 

the  country.  But  classification  is  uniform.  The  same 
article  will  be  put  in  the  same  class  in  any  part  of  the  Cana- 
dian Classification  territory,  while  the  rate  charged  will 
rest  upon  the  tariffs  determined  upon  for  that  particular 
part  of  the  country. 

Canada  is  divided  into  five  rate  territories,  and  in  each 
")f  these  five  territories  certain  rates  are  fixed  for  the  car- 
riage of  the  traflSc  specified  in  the  sixteen  classes  of  the 
Canadian  Classification.  These  rate  territories  together 
cover  the  whole  traffic  area  of  Canada  from  coast  to  coast. 
Naming  them  in  order  they  are:  (1)  Atlantic  territory, 
which  includes  all  territory  from  the  Atlantic  westward  as 
far  as  Sudbury,  just  north  of  Georgian  Bay;  (2)  Superior 
territory  from  Sudbury  to  Port  Arthur;  (3)  Prairie  terri- 
tory, from  all  points  in  New  Ontario  (i.e.,  in  Ontario  west 
of  and  including  Port  Arthur),  Manitoba,  Saskatche- 
wan, Alberta  north  to  Athabasca  Landing  and  west  to 
points  just  east  of  the  Rocky  Mountains;  (4)  Pacific  terri- 
tory from  the  western  termini  of  Prairie  territory  to  the 
Pacific  Coast;  (5)  British  Columbia  Lakes  territory  which 
covers  local  traffic  carried  on  vessels  owned  by  the  rail- 
way companies  between  ports  of  call  on  the  Arrow,  Slocan, 
Kootenay,  Trout,  and  Okanagan  Lakes  and  the  Columbia 
River.  The  rates  for  each  territory  are  fixed  upon  the  basis 
of  the  pecuhar  conditions  of  the  traffic  therein  existing. 

The  above  statement  should  make  clear  the  fact  that 
while  there  is  a  uniform  classification  there  is  not  a  uni- 
form basis  of  rates.  There  is  further  to  be  noted  the  fact 
that  the  interrelationship  between  rates  differs  in  West- 
ern Canada  from  that  in  the  East.  In  Eastern  Canada  the 
fifth  class  is  the  pivot  around  which  the  rate  structure  is 
built.  The  other  class  rates  are  percentages  above  or  be- 
low fifth  class.  For  instance,  class  one  is  100  per  cent 
higher  than  fifth  class;  class  2,  75  per  cent;  class  3,  50 
per  cent;  class  4,  25  per  cent.  A  change,  therefore,  in  class 
five  affects  the  whole  range  of  standard  traffic  in  Eastern 


60  CANADIAN  RAILWAY  RATES 

territory.  In  the  West  (for  Prairie,  Pacific,  and  British 
Columbia  Lakes  territory)  the  first  class  is  the  basic  rate, 
the  fourth  class  is  50  per  cent  less,  while  the  other  classes 
carry  no  fixed  percentage  —  but  are  adjusted  with  a  view 
to  the  best  meeting  of  the  demands  of  the  traffic.  The 
variations  in  interclass  relationships  touch  chiefly  the 
fourth,  sixth,  and  tenth  classes.  These  classes  are  rela- 
tively lower  under  the  Western  method  of  building  up  the 
rate  structure  than  they  would  be  under  the  Eastern. 
They  affect  particularly  many  commodities  shipped  in 
bulk;  agricultural  implements,  and  such  necessaries  as 
lumber,  coal,  cement,  and  buUding  material.  Practically 
all  of  these  classes  of  freight  move  in  Western  Canada  in 
car  lots. 

Within  the  rate  territories  the  standard  tariffs  are  built 
upon  a  mileage  basis.  The  distances  are  graduated  into 
zones  of  5  miles  up  to  100  miles,  10  miles  from  100  miles 
to  500  miles,  25  miles  from  500  miles  to  1500  miles,  and 
on  50-mile  zones  thereafter.  The  whole  thus  presents  a 
system  of  tapering  rates. 

In  general  these  standard  rates  are  higher  in  the  West 
than  in  the  East.  The  highest  rates  fixed  by  standard 
tariffs  naturally  occur  in  Pacific  territory,  which  includes 
those  portions  of  the  lines  that  cross  the  Rockies.  A  high 
level  also  exists  in  Superior  territory  from  Sudbury  to  Fort 
William.  The  interrelationship  between  classes  also  shows 
sHght  deviations  here.  As  a  matter  of  fact,  the  rates  of 
this  division  of  the  field  are  of  shght  importance  because  of 
the  absence  of  traffic.  They  are  really  paper  rates.  Brit- 
ish Columbia  boats  have  the  same  rates  as  Prairie  terri- 
tory computed  from  port  to  port  on  the  shortest  water 
mileage.  The  highest  rates  of  all  are  into  the  Yukon. 
These  go  on  Northern  classification.  The  conditions  are 
exceptional,  the  traffic  is  very  light  and  is  a  very  small  frac- 
tion of  the  whole  freight  movement.  The  mere  mention 
of  it  sufficiently  indicates  its  importance. 


RESULTS  OF  TRANSPORTATION  POLICY        61 

For  shipments  into  the  United  States  or  for  export  it  has 
been  found  convenient  in  Eastern  Canada  to  use  the  offi- 
cial classification.  For  the  same  reason  freight  moves  from 
Central  Freight  Association  territory  in  the  United  States 
into  Canada  on  the  Canadian  Classification  with  a  com- 
promise scale  of  rates.  Freight  from  the  New  York  group 
moves  on  a  percentage  of  the  New  York-Chicago  west- 
boimd  rate  into  the  western  Ontario  peninsula.  For  in- 
stance, freight  from  New  York  to  London,  Ontario,  pays 
on  the  basis  of  76  per  cent  of  the  rate  on  the  same  goods 
to  Chicago. 

This  describes  briefly  the  general  standard  rate  struc- 
ture of  the  Dominion  of  Canada.  It  remains,  however, 
to  be  pointed  out  that  a  large  part  of  the  traffic  moves 
under  other  tariffs  and  conditions.  The  standard  rate 
structure  serves  only  as  a  point  of  departure.  Modifying  it 
is  an  elaborate  complex  of  commodity  tariffs,  arbitraries, 
differentials,  and  "town"  and  "class"  tariffs  which  serve 
to  meet  special  traffic  conditions,  due  to  competition,  the 
nature  of  the  commodities,  or  the  demands  of  trade.  These 
modifications  show  that  after  all  the  Canadian  rate  struc- 
ture is  an  intricate  and  flexible  adjustment  to  the  require- 
ments of  freight  movement. 

This  appears  particularly  with  respect  to  the  demands 
of  competing  distributive  centers.  In  Prairie  and  inland 
Pacific  territory  the  problem  has  been  solved  by  the  de- 
velopment of  a  system  of  "town  tariffs."  These  town 
tariffs  grant  a  fifteen  per  cent  abatement  of  the  standard 
rate  from  all  "recognized  distributive  centers."  They  are 
restricted  to  these  "centers"  and  their  effect  is  to  tend  to 
give  each  city  and  town  its  "natural"  distributive  terri- 
tory. These  tariffs  cover  the  case  of  distributive  ship- 
ments outwards.  The  problem  of  importation  by  whole- 
salers and  jobbers  has  been  met  in  another  way.  The 
Board  of  Railway  Commissioners,  as  a  result  of  investiga- 
tions and  complaints,  has  fixed  rates  to  these  points  from 


62  CANADIAN  RAILWAY  RATES 

Lake  Superior  and  Pacific  termini.  In  a  sense,  similar  in 
nature  though  more  general  in  character,  are  "special 
class  rates"  established  from  the  same  termini  into  Prai- 
rie territory.  These  grant  lower  rates  than  those  set  forth 
in  the  standard  tariff,  but  they  are  not  determined  on  a 
percentage  basis.  Their  main  service  is  with  regard  to 
shipment  by  lake  and  rail  via  Port  Arthur  and  Fort  Wil- 
liam to  the  West.  These  rates  are  available  for  any  shipper 
who  wishes  to  ship  directly  from  the  East. 

"Natural  distributive  center"  is  a  vague  and  expansive 
phrase  which  has  not  been  closely  defined.  There  has 
scarcely  been  need  for  such.  The  interlacing  of  the  three 
transcontinental  Hues  in  the  Prairie  Provinces  has  re- 
sulted in  so  many  "centers"  that  smaller  towns  lacking 
service  from  two  lines  can  hardly  hope  to  become  serious 
competitors  for  distributive  business.  The  Western  traf- 
fic manager's  point  of  view  may  be  seen  in  the  statement 
that  "a  cigar  factory  in  a  httle  town  would  not  make  a 
natural  distributive  center."  The  general  effect  of  the 
present  rate  structure  is  to  build  up  a  number  of  recognized 
centers  which  have  the  distributive  business  of  the  West 
pretty  well  under  control. 

In  the  East  the  situation  is  somewhat  different.  Here 
water  competition,  the  presence  of  a  number  of  large  and 
long-established  competing  centers,  and  considerations 
arising  out  of  international  trade,  have  not  made  feasible 
the  granting  of  flat  reductions  below  the  standard  tariff. 
Instead  there  has  grown  up  a  system  of  interrelated  rates 
which  seeks  nicely  to  balance  the  conflicting  claims  of 
competing  cities.  The  two  leading  cities  of  Canada,  Mon- 
treal, and  Toronto,  are  the  key-points.  Rates  to  other 
centers  are  built  up  with  regard  to  the  rates  to  these  two 
cities.  In  the  East  the  cities  of  Sherbrooke  and  Quebec 
take  arbitraries  on  the  Montreal  rate.  Windsor  and  other 
points  in  western  Ontario  have  their  rates  governed  fun- 
damentally by  the  New  York-Detroit  rate  through  the 


RESULTS  OF  TRANSPORTATION  POLICY        63 

medium  of  the  latter's  influence  upon  the  Montreal-De- 
troit rate. 

The  rates  to  the  Maritime  Provinces  are  fixed  on  the 
basis  of  the  New  York  rate  and  the  Boston  route;  that  is, 
the  rate  that  Boston  takes  over  New  York,  plus  port 
charges,  insurance,  and  vessel  rate  charges  to  St.  John, 
Halifax,  Truro,  Sidney,  and  other  ports,  determine  the 
rail  rates  to  these  points.  The  Maritime  Provinces  get  the 
benefit  of  this  alternative  route.  Freight  to  the  Canadian 
West  from  Halifax,  Sidney,  and  other  Maritime  Province 
cities  can  travel  via  Boston  over  American  lines  or  by 
Quebec  or  Montreal  over  Canadian  railways.  Waterway 
transport  to  the  head  of  Lake  Superior  during  the  summer 
months  provides  a  couple  of  combined  routes  to  western 
Canada,  either  by  Duluth  and  American  lines  or  by  Fort 
WiUiam  or  Port  Arthur  and  Canadian  lines. 

To  points  on  the  Pacific  slope  the  basal  rate  from  the 
East  is  the  Montreal- Vancouver  rate.  This  rate  in  the 
first  instance  is  based  on  the  New  York-Chicago  rate  and 
the  Chicago-Seattle  rate  plus  the  rate  from  Seattle  to 
Vancouver.  This  in  turn  is  governed  by  water  competi- 
tion via  the  Panama  Canal.  Previous  to  the  existence  of 
the  Canal  the  rate  was  based  on  the  water  rate  around 
Cape  Horn.  Traffic  also  moved  within  this  rate  by  a  com- 
bined water  and  rail  route  via  the  Isthmus.  For  through 
traffic  rates  from  the  East  to  Vancouver,  Toronto,  Ot- 
tawa, and  Montreal  territory  are  blanketed,  and  vice  versa. 
In  this  case  during  the  navigation  season  the  water  and 
rail  rate  compared  to  the  all-rail  rate  is  lower  by  10  cents 
per  hundredweight,  on  the  first  class,  8  cents  less  on  the 
second  class,  7  cents  on  the  third,  6  cents  on  the  fourth, 
and  5  cents  less  on  the  remaining  classes. 

These  various  modifications  on  the  standard  tariffs  re- 
late to  classes  of  goods.  They  particularly  represent  con- 
cessions or  adaptations  of  a  general  nature  to  territorial 
conditions.   In  some  instances  they  are  due  to  the  efforts 


64  CANADIAN  RAILWAY  RATES 

of  particular  communities  to  put  themselves  in  a  more 
advantageous  trading  position.  But  in  most  cases  they 
arise  from  the  natural  circumstances  of  location  and  have 
been  made  by  the  railways  themselves  on  their  own  initia- 
tive in  the  pursuit  of  traffic.  They  represent,  therefore, 
one  phase  of  the  principle  of  charging  what  the  traffic  will 
bear. 

This  principle  receives  more  striking  exemplification 
in  connection  with  commodity  rates  under  which  a  great 
part  of  the  freight  movement  takes  place.  In  Canada,  as 
elsewhere,  the  presence  of  a  commodity  rate  simply  means 
that  the  traffic  will  not  move  freely  at  the  rate  reckoned 
on  the  basis  of  the  standard  or  general  tariffs.  Commodity 
rates  are  then  used.  They  are  merely  lower  rates  designed 
to  take  care  of  large  quantities  of  particular  commodi- 
ties moving  under  special  conditions.  There  are  a  great 
many  of  these  in  Canada.  The  total  number  of  freight 
schedules  filed  by  the  railways  with  the  chief  traffic  officer 
of  the  Board  of  Railway  Commissioners  from  Novem- 
ber 1,  1904,  up  to  and  including  March  31,  1915,  was  427,- 
675.  Not  all  of  these,  of  course,  were  commodity  tariffs, 
town  and  general  tariffs  are  included  in  the  total,  but  in 
the  main  these  tariffs  referred  to  a  particular  commodity 
on  which  a  special  rate  had  been  made  between  two  points. 
For  the  year  ending  March  31,  1916,  the  number  of  freight 
tariffs  including  supplements  filed  were  52,671.  These 
numbers  show  to  what  a  large  degree  the  real  rate  struc- 
ture of  Canada  has  been  built  up,  in  this  gradual  piece- 
meal fashion,  in  response  to  the  demands  of  trade.  It  is 
scarcely  necessary  to  point  out  again  that  the  Canadian 
Classification  and  standard  tariffs  are  but  a  point  of  de- 
parture. 

The  operation  of  these  commodity  tariffs  may  be  ex- 
hibited in  a  few  typical  cases.  These  cases  are  drawn  from 
the  tariffs  on  staple  commodities  and  they  are  sufficient 
to  illustrate  the  influence  of  commodity  tariffs  on  the  gen- 


RESULTS  OF  TRANSPORTATION  POLICY        65 

eral  rate  situation.  For  instance,  coal  is  an  important 
commodity  in  universal  use,  but  especially  important  in 
the  industrial  part  of  Eastern  Canada.  The  coal  supplies 
of  Canada  are  not  adjacent  to  the  manufacturing  area. 
There  is  coal  in  the  Maritime  Provinces,  coal  in  the  Prairie 
Provinces  and  in  British  Columbia.  With  respect  to  On- 
tario the  only  possible  Canadian  supply  that  might  be 
tapped  is  that  in  the  Maritime  Provinces.  But  it  is  obvi- 
ous that  the  distance  is  almost  prohibitive.  On  the  other 
hand,  the  coal  areas  of  the  United  States  afford  a  con- 
venient supply.  Hence  we  find  coal  moving  on  special 
tariffs  as  far  north  as  Sudbury.  In  western  Ontario  the 
great  bulk  of  the  traffic  is  received  from  the  Niagara  fron- 
tier and  Black  Rock,  New  York.  Bituminous  coal  also 
enters  via  Detroit.  The  west-of-Toronto  territory  is  sub- 
divided into  eight  groups,  rates  ranging  from  40  cents  per 
ton  in  the  Welland  Canal  district  to  $1.20  per  ton  in  the 
Lake  Huron  and  Georgian  Bay  district.  North  and  east 
of  Toronto  there  are  fifty  groups  which  are  partly  served 
from  the  Niagara  frontier.  Farther  east  an  intricate  situa- 
tion presents  itself.  The  gateways  are  more  numerous. 
Between  Coburg  and  Montreal,  inclusive,  there  are  eight- 
een coal  routes  into  the  manufacturing  area.  The  two 
dominating  proportional  tariffs  are  those  of  the  Canadian 
Pacific  Railway  from  Prescott  because  of  the  short  mile- 
age to  Ottawa  and  the  Ottawa  Valley  and  of  the  Grand 
Trunk  Railway  from  Rouse's  Point.  The  proportionals 
from  other  Quebec  gateways  appear  to  be  predicated  on 
those  from  Rouse's  Point.  The  evident  purpose  of  com- 
modity tariffs  here  is  larger  than  that  of  securing  the  coal 
traffic  alone.  Coal  is  an  important  element  in  manufac- 
turing, and  a  cheap  supply  means  an  increase  of  traffic 
in  other  lines  of  goods.  A  low  level  of  fuel  cost  may  mean 
the  presence  or  absence  of  a  certain  industrial  enterprise 
on  a  given  line  of  railroad. 

In  prairie  territory  the  coal  centers  are  in  the  Souris 


66  CANADIAN  RAILWAY  RATES 

Valley,  near  Lethbridge,  and  the  Drumheller  and  Edmon- 
ton districts.  From  these  points  coal  moves  on  tapering 
mileage  tariffs.  It  is  of  interest  to  note  here  that  the  Som-is 
coal  fields  encoimter  competition  from  the  Eastern  Ameri- 
can coal  mines,  because  of  a  low  commodity  rate  from  the 
head  of  the  Lakes.  This  low  rate  is  to  be  explained  by  the 
fact  that  coal  makes  a  valuable  back  haul  for  the  railroads 
and  Lake  carriers  and  tends  to  balance  the  tremendous 
freight  movement  in  grain  to  the  Lake  ports. 

Elsewhere  in  Canada  coal  receives  similar  treatment. 
On  the  Pacific  Coast  it  moves  inland  on  special  commodity 
mileage  tariffs,  finally  meeting  on  a  similar  tariff  the  coal 
from  Lethbridge  district.  In  the  Maritime  Provinces  low 
rates  to  most  points  are  compelled  by  water  competition. 
Water  carriage  of  Nova  Scotia  coal,  indeed,  permits  it  to 
move  west  to  Montreal,  where  it  meets  American  coal  en- 
tering via  the  Prescott,  Rouse's  Point,  and  other  gateways. 

After  coal  we  may  note  the  case  of  grain.  Grain  rates 
to  the  head  of  the  Lakes  have  a  very  low  fixed  commodity 
rate.  This  is  due  not  only  to  the  importance  of  the  traffic, 
but  also  to  legislative  agreements  with  the  grain-carrying 
lines  entered  into  by  the  Dominion  and  Manitoba  Govern- 
ments. When  the  railways  were  seeking  concessions  from 
these  Governments  in  the  West,  this  was  one  form  that 
the  quid  pro  quo  took. 

The  movement  of  grain  from  the  Lake  receiving  ports 
eastward  is  of  interest  also  because  it  shows  the  efforts 
made  by  the  railways  to  cooperate  with  trade  and  indus- 
try. There  are  three  rates  to  the  East:  aU  rail,  and  ex- 
water  rates  for  grain  for  domestic  purposes,  and  the  rate 
on  grain  for  export.  The  basal  rate  in  the  case  is  the  rate 
from  Fort  Wilham  to  Montreal.  But  this  rate,  in  turn,  is 
related  to  the  Chicago-New  York  rate  because  of  the  com- 
petition for  grain  carriage  via  Chicago  and  New  York  and 
via  the  Canadian  route.  To  go  back  one  step  farther,  the 
original  Chicago-New  York  rate  derives  from  a  rate  based 


RESULTS  OF  TRANSPORTATION  POLICY        67 

on  water  competition  via  the  Great  Lakes  and  the  Erie 
Canal.  This  is  a  good  instance  of  the  relationship  of  com- 
modity rates  in  Canada  to  those  over  which  no  Canadian 
regulative  board  could  exercise  control,  except  by  lower- 
ing the  Canadian  rates  to  compete  for  American  trade. 

The  ex-water  rates  on  grain  carriage  from  the  different 
Lake  and  river  ports  receiving  grain  is  made  proportional 
to  the  straight  Fort  William-Montreal  rate.  This  takes 
care  of  the  Eastern  situation  and  enables  ports  Uke  King- 
ston, at  the  foot  of  Lake  Ontario,  to  share  in  the  grain 
trade.  Another  phase  of  the  grain  rates  has  to  do  with 
grain  for  export  being  manufactured  in  transit.  Milling  in 
transit  is  permitted.  For  a  nominal  charge  grain  from 
Fort  William  on  stopover  privileges  can  be  milled  at  On- 
tario or  Quebec  points.  The  product  is  reshipped  on  the 
basis  of  the  through  rate.  Little  need  be  said  of  the  all- 
rail  rate  from  the  West  to  the  ocean  ports.  In  the  winter 
of  1916  the  congestion  of  grain  in  the  West  led  to  measures 
being  taken  to  secure  a  low  enough  rate  to  cause  grain  to 
move  by  rail  to  the  ocean  terminals,  but  the  scheme  has 
not  as  yet  worked  out  with  any  degree  of  success.^ 

Coal  and  grain  are  important  commodities  and  the  treat- 
ment they  receive  in  the  matter  of  rates  is  typical  of  that 
given  to  a  large  number  of  staple  commodities.  For  in- 
stance, lumber,  an  important  product  in  the  northern  part 
of  Ontario  and  of  Quebec,  moves  under  an  elaborate  com- 
modity tariff  to  the  main  centers  of  demand.  There  are 
especially  low  rates  in  the  Ottawa  Valley  on  account  of 
water  competition.  In  the  W^est  lumber  moves  under 
straight  commodity  mileage  rates.  The  sources  of  supply 
in  this  case  are  rather  widely  distributed,  but  a  great 
deal  comes  from  the  mills  in  British  Columbia.  Com- 
petition between  British  Columbia  and  Ontario  and  Que- 
bec sugar  refiners  has  resulted  in  a  number  of  struggles 

^  See,  however.  Annual  Report  of  the  Council  of  the  Quebec  Board  of 
Trade,  year  ending  January  31,  1917,  p.  7. 


68  CANADIAN  RAILWAY  RATES 

over  rates  for  that  commodity.  The  present  rates  fix 
the  meeting-point  between  the  Eastern  and  Western  re- 
finers in  central  Manitoba.  As  a  result  the  Western  re- 
finers supply  most  of  the  demand  in  prairie  territory. 
Barbed  wire  travels  eastward  from  Toronto  and  westward 
from  Montreal  on  the  same  basis  of  rates.  Oil  moves  from 
Petrolia,  Ontario,  on  a  66-cent  all-rail  rate  to  Winnipeg, 
where  it  competes  with  the  products  of  the  Kansas  oil 
fields  as  well  as  with  oil  from  Eastern  American  oil  fields 
moving  on  a  combined  water  and  rail  rate  via  Fort  Wil- 
liam. In  the  fruit  districts  of  Ontario  concentration  points 
are  named  for  fruits.  At  these  points  the  fruit  is  loaded  in 
bulk  and  then  receives  the  through  commodity  rate  from 
the  initial  point  of  shipment. 

Much  of  the  large  traflBc  between  points  in  the  United 
States  and  Canada  moves  on  special  commodity  rates  ar- 
ranged by  the  lines  affected.  Where  arrangements  of  this 
sort  are  not  voluntarily  made,  the  general  rule  for  freight 
between  the  two  countries  is  to  regard  it  as  a  joint  rate 
and  therefore  lower  than  the  sum  of  the  local  rates.  As  we 
have  already  noted,  between  the  Eastern  railway  net  in 
Canada  and  the  adjoining  territory  in  the  United  States, 
goods  are  shipped  into  the  United  States  on  the  American 
Classification  and  into  Canada  on  the  Canadian  Classi- 
fication. 

The  salient  characteristics  of  the  Canadian  rate  struc- 
ture are:  (1)  a  uniform  Canadian  Classification  for  all  of 
Canada  except  for  the  Yukon;  (2)  different  rate  levels 
corresponding  in  a  general  way  with  the  different  kind  of 
traffic  conditions  found  in  different  parts  of  the  Dominion; 
(3)  town  and  special  class  tariffs  to  protect  the  distribu- 
tive centers;  and  (4)  a  great  mass  of  commodity  tariffs  to 
meet  the  peculiar  demands  of  commerce  and  industry. 

The  importance  of  this  structure  to  the  work  of  the 
Board  of  Railway  Commissioners  lies  in  the  fact  that  it  is 
one  of  considerable  intricacy  that  has  grown  up  gradually 


RESULTS  OF  TRANSPORTATION  POLICY        69 

to  meet  the  demands  of  the  Canadian  situation.  Any 
drastic  change  in  rates  must  call  into  consideration  a  large 
number  of  factors,  not  always  on  the  surface.  Disputes 
cannot  be  settled  with  regard  solely  to  the  particular  case 
under  review.  Thus  a  change  in  rates  on  grain  being  car- 
ried between  a  Lake  port  and  an  inland  milling  center 
cannot  rest  merely  on  its  unfairness  or  fairness  'per  se.  It 
really  places  in  issue  the  whole  structure  of  grain  rates. 
This  in  turn  is  interlinked  with  the  American  rate  struc- 
ture. 

Another  consideration  is  that  the  wide  deviations  from 
the  formal  regularity  of  the  standard  tariffs  in  themselves 
demonstrate  the  difficulty,  not  to  say  impossibility,  of  lay- 
ing down  any  general  standard.  Thus  the  general  stand- 
ards, voluntarily  established  by  the  railroads  themselves, 
have  been  radically  modified  by  positive  influences  largely 
outside  of  the  control  of  the  railroads  as  a  group  or  as  in- 
dividual systems.  It  is  diflBcult  to  discover  how  a  railway 
commission  could  ignore  these  natural  circumstances  or 
by  fiat  hope  to  bring  them  under  standardized  practice. 

§  3.  These  facts  suggest  a  rather  contracted  field  for  the 
effective  operation  of  a  railroad  commission  with  jurisdic- 
tion over  rates,  no  matter  how  plenary  the  powers  that 
may  have  been  conferred  upon  it.  The  presence  of  water- 
way competition  at  many  important  points  brings  to  bear 
a  natural  corrective  upon  rates,  while  injecting  an  element 
into  the  situation  difficult  to  meet  by  administrative  ruling, 
though  it  is  true  such  rulings  might  be  applied  to  water 
routes  also.  Equally  diflBcult  to  modify  are  the  conditions 
produced  by  the  international  relationships  of  both  the 
Grand  Trunk  and  the  Canadian  Pacific.  Both  have  ex- 
tensive American  divisions  over  which  a  Canadian  board 
can  have  no  control.  Moreover,  all  of  the  lines  have  to 
face,  to  some  degree,  conditions  of  competition  created  by 
rival  American  lines.  That  which  is  a  disturbing  element 
in  certain  sections  in  the  United  States  naturally  assumes 


70  CANADIAN  RAILWAY  RATES 

greater  relative  importance  in  the  long,  narrow  Canadian 
field. 

Limitation  upon  the  powers  of  a  commission  arise  in 
these  two  instances  from  the  natm'e  of  the  obstacles.  A 
number  of  factors  conspire  not  to  limit  the  power  of  the 
commission,  but  to  simplify  its  problems.  As  a  result  of 
centralization  of  railway  control  in  any  given  situation 
scarcely  more  than  three  or  four  lines  will  be  directly  con- 
cerned, and  as  each  taps  practically  all  the  important 
centers  of  originating  traffic,  there  is  little  likelihood  of 
any  single  Une  allying  itself  with  interregional  rivalry. 
The  gap  between  East  and  West  simplifies  a  rate  commis- 
sion's problems  to  this  degree :  there  is'no  great  series  of  mid- 
dle Canadian  manufacturing  and  distributing  centers  com- 
peting with  cities  farther  East  for  the  trade  of  the  West. 
It  thus  escapes  the  necessity  of  passing  upon  a  great  vari- 
ety of  rate  adjustments.  From  Winnipeg  westward  the 
situation  undoubtedly  is  pregnant  with  greater  possibilities 
of  controversy.  Winnipeg  stands  somewhat  in  the  same 
way  to  the  Canadian  prairies  as  Chicago  or  St.  Louis  to 
the  American  Granger  States.  In  Canada,  however,  there 
is  only  one  city  in  the  field  with  a  corresponding  simpli- 
fication in  problem  and  scope  of  influence.  But  beyond 
Winnipeg  are  the  cities  of  Brandon,  Regina,  Moosejaw, 
Saskatoon,  North  Battleford,  Prince  Albert,  Edmonton, 
and  Calgary,  As  these  cities  grow  and  proceed  to  claim 
and  develop  more  carefully  their  distribution  fields,  we 
may  expect  decisions  of  far-reaching  and  important  con- 
sequence, not  only  to  themselves  but  to  the  cities  of  the 
East  and  of  the  Pacific  Coast.  On  the  whole,  however, 
the  natural  features  of  the  Canadian  situation  tend  to  re- 
duce the  power  of  a  regulative  commission  to  fairly  nar- 
row limits. 

Controlling  a  railway  commission's  policy  must  be  the 
fundamental  principle  of  the  relationship  of  property  to 
income  as  affected  by  rate  determinations.   This  settled, 


RESULTS  OF  TRANSPORTATION  POLICY        71 

there  remains  the  secondary  problem  as  to  how  the  chosen 
poUcy  will  be  effectuated.  Two  courses  are  possible:  to 
accept  the  developed  structure  and  modify  rates  to 
bring  them  into  harmony  with  the  policy  settled  upon, 
or  to  remodel  the  whole  on  the  basis  of  a  general  theory  of 
rate-making.  The  study  of  the  decisions  of  the  Board  of 
Railway  Commissioners  of  Canada,  which  follows  a  sur- 
vey of  the  evolution  of  means  of  public  control,  will  show 
how  this  body  has  evolved  its  fundamental  principle  and 
the  course  it  has  pursued  with  regard  to  the  development 
of  rates  and  rate  structure. 


CHAPTER  V 

THE  MACHINERY  OF  PUBLIC  CONTROL  OVER 
RATES 

§  1.  The  present  chapter  will  be  devoted  to  an  account 
of  the  growth  of  means  of  public  control  over  railroad  en- 
terprises in  Canada.  Preceding  chapters  have  traced  the 
evolution  of  means  of  transportation  in  Canada  from  the 
date  when  the  British  colonies  in  North  America  began  a 
calculated  policy  to  build  up  convenient  and  self -sufficient 
avenues  for  the  carriage  of  goods.  This  pohcy,  continued 
without  serious  deviation  or  lapse  for  nearly  a  century, 
as  we  have  shown,  has  given  the  Dominion  of  Canada 
a  generous  endowment  of  navigable  waterways  and  rail- 
way fines.  Despite  comparative  sparseness  of  population, 
"magnificent  distances,"  great  engineering  difficulties, 
there  has  been  developed  a  comprehensive  system  of  trans- 
portation that  enables  traffic  to  move  from  one  end  of  the 
Dominion  to  the  other  and  aUows  Canadian  products  to 
find  access  to  the  markets  of  the  world.  It  is  not  to  be 
imagined  that  these  immense  enterprises,  carried  through 
at  great  cost,  have  not  had  their  influence  upon  law  and 
legislation.  The  increasing  complexity  of  economic  life 
combined  with  the  growth  in  importance  of  the  transport 
function  united  to  develop  in  Canada  as  elsewhere  prob- 
lems and  evils  which  simple  methods  were  unfitted  to  con- 
trol. Hence,  just  as  the  growth  of  transportation  facilities 
represents  an  evolution  and  progression,  so  does  the  means 
of  the  State  to  insure  that  they  serve  their  due  purpose 
become  more  complex  with  the  corresponding  increasing 
complexity  of  the  problems  raised. 

In  the  development  of  means  of  control  the  process  has 


MACHINERY  OF  CONTROL  OVER  RATES   73 

been  one  of  accretion  or  addition  rather  than  that  of  re- 
placement and  repeal.  New  devices,  of  necessity,  were 
created  and  superimposed  upon  existent  regulations.  Thus, 
to-day  in  Canada  there  are  four  ways  by  which  railroads 
come  under  the  power  of  the  State.  These  four  ways  are: 
(1)  by  the  common  law;  (2)  by  restrictions  imposed  upon 
the  company  in  its  charter  when  incorporated;  (3)  by 
statutory  regulations  of  a  general  nature;  and  (4)  by  a  rail- 
way commission  with  comprehensive  powers  of  super- 
vision and  correction.  Each  of  these  means  represents  an 
advance  upon  those  preceding.  In  certain  particulars 
there  might  be  some  limitation  upon  the  scope  of  former 
means,  but  in  the  main  each  method  has  been  retained  and 
is  relied  upon  for  the  achievement  of  certain  ends.  As  the 
central  interest  of  this  study  is  in  the  rate  determinations 
of  the  Board  of  Railway  Commissioners,  it  is  obviously 
to  the  best  advantage  here  to  confine  attention  largely  to 
the  development  of  that  aspect  of  public  control.  A  brief 
survey  will  be  made  of  the  progress  of  rate  regulation  be- 
tween 1835  and  the  present  time  in  Canada.  Other  aspects 
of  State  control  will  be  largely  ignored,  except  to  indi- 
cate in  regard  to  the  Board  of  Railway  Commissioners  the 
relative  importance  of  the  rate-determining  function  to 
others  with  which  it  is  charged.  It  may  be  noted  here 
that  the  problem  of  the  regulation  of  rates  in  the  case  of 
navigation  has  not  been  touched  except  in  connection 
with  combined  water  and  rail  rates  or  where  navigation 
lines  are  owned  by  the  railroads.  Provincial  regulation 
of  railway  rates  is  of  slight  importance  and  does  not  vi- 
tally affect  our  problem  both  because  of  the  limited  powers 
of  the  Provinces  and  the  absence  of  purely  provincial 
lines. 

The  first  method  by  which  public  control  was  exercised 
was  by  the  common  law.  Canada's  common  law  comes 
from  England  and  to  point  out  the  method  by  which  rail- 
road rates  come  within  its  scope  requires  some  reference 


74  CANADIAN  RAILWAY  RATES 

to  early  English  cases  upon  the  subject.  When  the  first 
railways  were  incorporated,  by  analogy  they  were  con- 
ceived of  as  of  the  same  nature  as  turnpike  or  toll  roads 
and  canals.^  Hence  it  was  agreed  that  tolls  were  to  be  paid 
for  their  use  by  common  carriers  between  whom  it  was 
contemplated  competition  should  exist.  A  railroad,  ac- 
cording to  this  view,  was  merely  a  superior  road  and  ful- 
filled its  function  by  providing  a  better  roadway  for  the 
carriage  of  goods  than  a  metaled  road.  Thus,  in  the  be- 
ginning the  carriage  of  the  goods  and  the  providing  of  the 
road  were  dissociated,  just  as  in  the  case  of  turnpike  roads 
and  canals  they  are  dissociated  to-day.  The  proprietors  of 
the  roads,  however,  were  further  empowered  to  convey 
goods  if  they  chose.  If  they  elected  to  do  so  they  came 
within  the  common  law  of  carriers  themselves  with  the 
obligation  to  carry  goods  for  all  persons  indifiFerently,  "on 
being  tendered  a  reasonable  compensation."  ^  We  may 
pass  over  the  early  discovery  that  railroads  were  not  in 
their  nature  fitted  for  operation  by  every  carrier  who 
wished  to  employ  them,  but  were  essentially  meant  for 
unified  control.  However,  this  point  is  important,  as  the 
proprietors  of  the  road  also  became  the  operating  carriers, 
common-law  methods  of  reUef  were  open  to  shippers  who 
felt  that  they  were  being  unjustly  imposed  upon.  But 
as  a  matter  of  fact  in  Canada  this  mode  of  relief  has  been 
practically  never  used.  Indeed,  even  after  statute  law 
eased  the  way  for  judicial  appeal,  there  was  but  little  re- 
course to  the  courts  in  connection  with  rates.  Digests  for 
the  Province  of  Quebec  to  1878  do  not  show  a  single  case 
reported  tm-ning  upon  the  reasonableness  of  the  charges 

*  "  That  all  persons  shall  have  free  liberty  to  pass  along  and  upon  and 
to  use  and  employ  the  said  railway  with  carriages  properly  constructed 
as  by  this  act  directed,  upon  payment  only  of  such  rates  and  tolls  as  shall 
be  demanded  by  the  said  company,"  etc.  Section  163,  Great  Western 
Act,  5  and  6  Wm.  IV,  c.  207  (1836). 

'  Palmer  vs.  the  Grand  Junction  Railway,  4  Meeson  &  Welsby,  749 
(1839). 


MACHINERY  OF  CONTROL  OVER  RATES   75 

made  for  carriage.^  The  same  holds  true  for  New  Brmis- 
wick  ^  and  Nova  Scotia.^  In  Ontario  ^  in  a  single  instance^ 
where  a  complaint  of  discrimination  was  laid  the  decision 
tm-ned  on  a  clause  in  the  incorporating  act,  as  the  common- 
law  duty  to  carry  for  a  reasonable  toll  as  then  developed 
did  not  import  the  further  duty  to  carry  goods  for  all  cus- 
tomers at  the  same  rates. ^ 

The  real  significance  of  the  absence  of  litigation  in  re- 
spec^  to  tolls  appears  to  be  lack  of  grievance.  In  the  early 
days  of  railroad  development  there  was  such  a  strong  de- 
mand for  facilities  that  in  obtaining  the  convenience  of 
rapid  transit  incidental  evUs  were  lost  sight  of.  Possibly, 
too,  the  failure  of  the  common  law  to  cover  adequately 
the  case  of  discrimination  by  shutting  off  the  hope  of  re- 
lief prevented  appeals  to  the  courts  arising  from  that 
fruitful  source  of  complaint.  Moreover,  statutory  regu- 
lations appeared  in  1851  and  before  that  time  railroad 
development  was  so  slight  and  unimportant  that  we  should 
hardly  expect  much  recourse  to  the  law  on  questions  of 
rates.  This  particular  phase  of  litigation  naturally  ap- 
peared later,  when  the  cardinal  principles  in  the  common 
law  of  carriers  had  been  comprehensively  codified  or  were 
embedded  in  the  railway  companies'  charters  of  incor- 
poration.' Appeals  to  the  court  would  then  naturally  tend 

1  C.  H.  Stephens,  B.C.L.,  Quebec  Law  Digest  from  1810  to  1877. 
Andrew  Robertson,  K.C.,   A  Digest  of  all  the  Reports  Published  in 

Lower  Canada  to  1863. 

2  J.  G.  Stevens,  Stevens's  Digest,  1825  to  1879. 

^  F.  T.  Congdon,  Congdon's  Nova  Scotia  Digest. 

*  The  Digest  of  Ontario  Case  Law. 

^  The  Attorney-General  vs.  The  Ontario,  Simcoe  &  Huron  Railway 
Company,  1858.  6  Grant's  Chancery  Reports,  446. 

6  Scott  vs.  Middleton,  33  U.C.R.  580. 

'  MacMurchy  and  Dennison  on  section  284  of  the  Canadian  Railway 
Act:  "In  three  particulars,  however,  railway  companies  differ  from  com- 
mon carriers  on  account  of  the  provisions  of  this  act,  (1)  their  right  to 
limit  their  liability  by  contract  is  curtailed;  (2)  their  tolls  must  be  equal; 
(3)  they  are  by  this  and  other  sections  subject  to  the  general  supervision 
of  the  Board  of  Railway  Commissioners."  MacMurchy  and  Dennison, 
Railroad  Law  of  Canada,  p.  449. 


76  CANADIAN  RAILWAY  RATES 

to  hinge  on  the  provisions  of  the  code.  Of  course,  com- 
mon-law principles  continued  to  aflFord  a  means  of  relief 
in  cases  of  tort  or  contract,  but  these  lie  without  the  scope 
of  this  study. 

§  2.  Railroads  in  Canada  have  always  had  to  apply  to 
the  Federal  ParUament  or  to  the  Provincial  Legislature 
for  their  charter  of  incorporation.  Provisions  in  the  very 
earhest  of  these  charters  indicate  that  the  Legislature  had 
the  subject  of  rates  under  advisement.  But  the  nature 
of  the  provisions  suggests  rather  the  early  extravagant 
views  of  the  promoters  and  the  public  as  to  the  pecuniary 
returns  to  be  derived  from  these  new  forms  of  enterprise 
than  any  very  serious  anticipation  of  evils.  The  first  in- 
stance of  railway  legislation  in  Canada  is  found  in  the 
Province  of  Quebec  in  1832.  In  that  year  the  Champlain 
&  St.  La"^Tence  Railway  secured  a  charter  ^  for  a  railroad 
from  the  Port  of  St.  John's  to  the  River  St.  Lawrence.  On 
this  occasion  the  legislative  assembly,  after  examining  wit- 
nesses as  to  the  level  of  charges  that  then  prevailed  be- 
tween these  two  points,  fijced  a  maximum  rate  for  both 
freight  and  passenger  service.^  Another  clause  of  the  char- 
ter provided  that  for  every  one  per  cent  increase  of  divi- 
dend over  twelve  per  cent,  there  should  be  a  five  per  cent 
reduction  in  the  tolls  the  following  year.  In  order  that  this 
might  be  accomplished,  it  was  provided  that  there  should 
be  an  annual  return  submitted  to  the  Legislature  showing 
the  result  of  the  operations  for  the  year.  Thus  the  pub- 
licity of  raihoad  accounts  was  taken  for  granted  in  the  first 
charter  authorized. 

In  New  Brunswick  the  charter  of  the  St.  Andrews  & 
Quebec  Railway  reveals  extravagant  hopes  of  gain.^  The 
rates  were  to  be  reasonable  and  under  the  control  of  the 
company,  but  after  ten  years,  if  the  Legislature  deemed 

1  2  Wm.  IV,  c.  58  (1832). 

2  Journal  of  the  House  of  Assembly  of  Lower  Canada  (1831),  Appen- 
dix, Feb.  28  (1831)  S.   Also  appendix  (1831-2),  Dec.  26,  1831. 

3  6  Wm.  IV,  c.  31  (1836). 


MACHINERY  OF  CONTROL  OVER  RATES       77 

them  excessive,  it  might  reduce  them  so  that  profits  should 
not  exceed  twenty-five  per  cent.  In  Upper  Canada  the 
Legislature  left  the  power  of  determining  rates  to  the  presi- 
dent and  the  directors.^  The  early  legislation  here  fol- 
lowed the  English  models  closely  and  accepted  their  view 
of  competing  carriers  utilizing  the  same  line. 

Limitation  of  rates  on  the  basis  of  dividends  met  with 
public  criticism  in  the  Province  of  Quebec  as  likely  to  dis- 
courage the  investment  of  capital  in  desirable  enterprises. ^ 
It  was  feared  capital  would  migrate  to  other  Provinces 
where  restrictions  were  not  so  severe.  Perhaps  that  is  why 
in  later  charters  granted  by  Quebec  the  restrictions  do  not 
appear  in  so  rigid  a  form.  In  the  St.  Lawrence  &  Industry 
Railway  charter,  secured  in  1847,^  while  tolls  are  to  be  or- 
dained by  by-law  without  giving  privileges  or  undue  ad- 
vantages, there  are  no  provisions  for  automatic  reduction. 
A  tax,  however,  is  to  be  laid  in  case  the  profits  exceed 
twenty-four  per  cent.  In  the  Atlantic  &  St.  Lawrence 
Railway  charter,^  while  maximum  rates  are  set  forth,  to 
be  charged  equally,  a  tax  is  also  to  be  imposed  if  the  earn- 
ings exceed  twelve  per  cent.  There  was  thus  wide  varia- 
tion in  the  various  acts  of  incorporation,  but  clearly  the 
main  ends  sought  were  to  repair  the  deficiencies  of  the  com- 
mon law  with  respect  to  discrimination  and  to  prevent 
unduly  high  rates.  At  the  same  time  the  way  was  left  open 
for  indefinitely  large  profits. 

Charter  control  was  not  altogether  supplanted  by  the 
later  policy  of  general  railway  acts.  The  general  acts,  as 
the  adjective  imphes,  were  rather  designed  to  collect  the 

1  4  Wm.  IV,  c.  28;  4  Wm.  IV,  c.  29  (1834). 

*  Thus  the  Montreal  Gazette  of  December  29,  1835,  finds  fault  with 
Hon.  L.  J.  Papineau  in  connection  with  the  line  from  the  St.  Lawrence 
to  Kennebec  because  he  wished  to  limit  profits  to  twelve  per  cent,  when 
in  the  United  States  the  Gazette  averred  railways  "divided  even  as  high 
as  fifty  per  cent  upon  their  capital,  without  being  alarmed  at  the  bugbear 
of  high  prices." 

»  10  &  11  Vic,  c.  64  (1848).  *  8  Vic,  c  25  (1845). 


78  CANADIAN  RAILWAY  RATES 

provisions  that  were  "usually  inserted"  ^  in  charters, 
while  leaving  to  the  charter  itself  peculiar  features  suitable 
to  the  individual  road.  The  charters  include  as  part  of  the 
act  of  incorporation  the  general  act  unless  expressly  varied. 
Moreover,  when  they  have  been  varied  it  has  usually  been 
within  the  act  by  providing  for  more  stringent  restriction. 
An  example  of  this  is  found  in  the  comparatively  recent 
charter  of  the  Canadian  Pacific  Railway,  which  provides 
for  a  reduction  of  rates  if  the  net  earnings  of  capital  exceed 
ten  per  cent,  whereas  under  the  general  act  the  level  at 
that  time  was  fifteen  per  cent.  Charter  control  of  rates, 
however,  has  been  of  no  consequence.  To  say  nothing  of 
other  difficulties,  the  maximum  set  before  control  became 
efiFective  has  been  too  high.  Class  rates  and  even  commod- 
ity rates  might  press  with  severity  upon  the  shipper  before 
the  earnings  of  the  company  would  mount  to  fifteen  or  even 
to  ten  per  cent.  These  provisions  really  represent  the  first 
experiments  by  the  Legislatures  of  the  Canadian  Prov- 
inces to  prevent  the  railroad  companies  from  levying  an 
undue  toll  upon  the  people  without  at  the  same  time  dis- 
couraging railway  enterprise. 

An  example  of  legislation,  which  is  neither  a  case  of 
pure  charter  granting  nor  yet  general  law,  is  afforded  by 
the  Crowsnest  Pass  Railway  agreement.^  This  agreement 
was  entered  into  by  the  Dominion  Government  and  the 
Canadian  Pacific  Railway.  For  certain  aid  extended  to 
this  branch,  the  Canadian  Pacific  Railway  agreed  to  give 
reduced  rates  on  a  schedule  of  goods  comprising  traffic 
moving  between  Eastern  and  Western  Canada.  That  is, 
for  aid  granted  to  one  portion  of  its  line,  it  agreed  to  give 
reduced  rates  on  another  portion.  This  agreement  does  not 
represent,  therefore,  a  clear  case  of  charter  control,  nor 
does  it  arise  from  a  consideration  of  the  large  profits  being 

'  Journals  of  the  House  (1851),  Eighth  Report  of  Select  Committee  on 
Railways  and  Telegraph  Lines,  Appendix  UU. 
«  60-61  Vic,  c.  5  (1898). 


MACHINERY  OF  CONTROL  OVER  RATES       79 

made  by  the  railroad  in  question.  Charter  control  of  rates 
being  based,  as  we  have  seen,  on  a  conception  of  generous 
profits  before  regulation  began,  never  became  effective. 
The  forces  which  finally  led  to  comprehensive  rate  control 
did  not  arise  from  a  consideration  of  large  profits  being 
made  by  the  railway  companies,  but  from  other  causes. 

§  3.  Statutory  control  began  to  be  exercised  in  1851 
when  the  first  general  railway  act  was  passed.  ^  As  already 
noted,  the  aim  was  to  "consolidate  in  one  act  certain  pro- 
visions usually  inserted  in  acts  authorizing  the  making  of 
railways."  The  bill  followed  the  English  Act  of  1845  in 
most  of  its  features,  dealing  quite  elaborately  with  the 
powers  and  organization  of  a  railway,  procedure  in  taking 
land,  and  the  operation  of  a  line.  In  respect  to  tolls  it  pro- 
vided that  they  were  to  be  fixed  by  by-law  and  there  was 
to  be  no  "undue  advantage,  privilege,  or  monopoly  af- 
forded to  any  person  or  class  of  persons."  All  tolls  before 
being  levied  were  to  be  approved  by  the  Governor-in- 
Council.  This  latter  provision  represents  a  modification 
of  the  Imperial  Act,  the  select  committee  considering  the 
Executive  Government  to  be  the  best  substitute  for  the 
English  Board  of  Trade. ^ 

Revisions  and  consolidations  of  the  Railway  Act  left 
these  main  clauses  practically  untouched  until  1888.  In 
that  year,  prior  to  changes  in  contemplation  with  a  view  to 
quieting  criticisms  of  railway  policy  and  practice,  an  ex- 
tensive investigation  of  the  methods  of  railway  control  was 
conducted  by  a  Royal  Commission.^  The  report  of  this 
Commission  is  noteworthy,  because  on  its  recommenda- 
tion an  important  change  in  the  policy  of  railway  control 
was  initiated.  The  Conmiission  recommended  the  crea- 
tion of  an  "independent  tribunal"  ^  to  deal  with  rates  and 
"generally  to  regulate  the  system  of  railway  management 

»  14-15  Vic,  c.  51  (1851). 

*  Journals  of  the  House  (1846),  First  and  Second  Report  of  Select  Com- 
mittee, Appendix  R. 

'  Report  of  the  Royal  Commission  on  Railways  (1888).      *  Ibid.,  p.  12. 


80  CANADIAN  RAILWAY  RATES 

in  its  relation  to  the  commerce  of  the  country."  It  also  sug- 
gested the  establishment  of  uniform  classification  except  for 
through  traflSc  to  and  from  the  United  States.^  In  regard 
to  uniform  rates  on  freight  carriage  it  declared  that  "the 
competition  by  water  and  rail  from  almost  every  impor- 
tant business  center  in  Canada  forbids  the  adoption  of 
uniform  mileage  rates,"  ^  Unfortunately  the  Royal  Com- 
mission, when  it  came  to  the  determination  of  the  form  of 
tribunal  it  should  recommend,  rather  inconclusively  de- 
cided against  an  administrative  body  of  the  nature  of  the 
Interstate  Commerce  Commission  of  the  United  States. 
Holding  that  the  Canadian  system  of  government,  with 
its  insistence  upon  ministerial  responsibility,  precluded 
an  "irresponsible"  body,  the  Commission  recommended 
that  the  Railway  Committee  of  the  Privy  Council  be 
given  wider  powers  and  constitute  the  new  tribunal.  The 
scheme  contemplated  an  elaborate  system  of  preliminary 
reference  to  oflBcers  in  each  Province,  who  could  take  evi- 
dence, decide  cases,  and  from  whom  appeal  would  lie  to 
the  committee  itself.  This  feature  was  considerably  modi- 
fied in  the  bill  finally  adopted  by  Parhament.  A  simple 
clause  was  inserted  providing  that  the  Committee  could 
appoint  an  officer  to  take  evidence.  Otherwise  these  rec- 
ommendations were  accepted  by  Parliament  and  became 
law.^  The  clause  conferring  powers  on  the  Railway  Com- 
mittee became  the  foundation  of  the  jurisdiction  later  in- 
herited by  the  Board  of  Railway  Commissioners, 

The  revision  of  1888  thus  marks  the  entering  wedge  of 
broad  administrative  control.  In  another  respect  this  re- 
vision is  something  of  a  landmark.  The  clauses  of  the 
act  dealing  with  rates  and  traffic  are  set  forth  with  much 
more  particularity  than  in  previous  enactments.  In  fact 
the  measure  indicates  the  definite  emergence  of  methods 
to  control  problems  of  this  nature.   Though  the  railways 

1  Report  of  the  Royal  Commission  on  Railways  (1888),  p.  12. 
»  Ibid.,  p.  13.  «  61  Vic,  c.  29  (1888). 


MACHINERY  OF  CONTROL  OVER  RATES       81 

were  guaranteed  the  right  to  fix  tolls  for  "large  quanti- 
ties" or  for  "long  distances"  at  "proportionately  less" 
than  for  "small  quantities"  or  for  "short  distances,"  rates 
were  to  be  charged  equally  to  all  persons.  Neither  were 
reductions  to  be  for  quantities  of  less  than  "  one  carload  of 
at  least  ten  tons."  Thus  with  1888  the  outlines  of  the  pres- 
ent system  of  pubhc  control  over  railway  rates  begin  to 
appear,  as  yet,  however,  only  in  outline. 

The  Royal  Commission  in  its  tour  of  inquiry  had  not 
visited  the  Northwest  and  it  was  from  that  part  of  the 
country  that  complaint  soon  came.^  The  legislative  as- 
semblies of  Manitoba  and  of  the  Northwest  territories, 
farmers'  organizations  and  other  organized  bodies,  charged 
the  Canadian  Pacific  Railway  with  exacting  exorbitant 
rates.2  At  length  in  1894  to  meet  a  chorus  of  complaint, 
Hon.  John  Haggart,  Minister  of  Railways  and  Canals, 
appointed  a  Departmental  Commission  to  investigate  the 
grievances.  This  Commission  held  sittings  in  Winnipeg 
and  other  Western  centers,  investigating  the  rates  on 
grain,  lumber,  coal,  merchandise,  and  dairy  products. 
By  comparison  of  rates  on  contiguous  American  territory 
through  schedules  presented  by  the  Canadian  Pacific,  the 
Commission  decided  that  Canadian  shippers  were  getting 
better  rates  than  their  neighbors  across  the  line.  A  single 
exception  was  admitted;  on  agricultm-al  implements  the 
rates  were  found  to  be  higher  than  in  North  Dakota.  With 
this  exception  the  Commission  declared  that  "the  com- 
parison does  not  bear  out  the  charges  that  the  rates  in 
Manitoba  and  the  northwest  were  either  exorbitant  or  ex- 
cessive." ^  The  comparison  of  rates  based  on  Eastern  lines, 
presented  by  the  complainants,  was  rejected  as  unfair,  and 
in  the  face  of  this  ruling  their  case  crumbled.  In  the  event 

'  Report  of  the  Railway  Rates  Commission  (1895). 

*  An  Open  Letter  to  the  Shareholders  of  the  Canadian  Pacific  Railway 
Company.  Issued  by  the  authority  of  the  Winnipeg  Board  of  Trade  and 
the  Brandon  Board  of  Trade,  October  1,  1887. 

'  Report  of  the  Railway  Rates  Commission  (1895),  p.  12. 


82  CANADIAN  RAILWAY  RATES 

the  result  of  the  investigation  was  held  to  be  a  complete 
confutation  of  the  charges.  The  Canadian  Pacific  Rail- 
way's defense  was  accepted  and  it  was  completely  exoner- 
ated, the  Commission  observing  "an  apparent  desire  on 
the  part  of  the  company  to  give  every  possible  induce- 
ment by  favorable  rates  and  additional  facilities  to  any 
person  desirous  of  embarking  in  any  new  industry  that 
would  add  to  the  business  of  the  west  or  the  trafl&c  of  the 
road."^  An  eminently  safe  conclusion!  As  the  case  was 
drawn  there  can  be  no  doubt  that  the  Canadian  Pacific 
Railway  was  able  to  vindicate  itself,  particularly  as  the 
attempt  of  the  complainants  to  raise  the  broader  issue  of 
the  railway's  obligation  to  the  West  in  view  of  the  heavy 
subsidies  received  there,  was  brushed  aside.  The  Commis- 
sioners were  obviously  pro-railway  in  their  sympathies 
and  apparently  intent  upon  a  ruling  rather  than  upon  the 
amelioration  of  distress. 

The  natural  result  was  that  rate  grievances  were  soon 
to  the  front  again,  but  this  time  discontent  was  more  gen- 
eral, being  present  in  the  East  as  well  as  in  the  West.  This 
time  Professor  Simon  McLean,  of  the  University  of  To- 
ronto, was  instructed  to  investigate  the  causes  and  to  sug- 
gest a  solution.  His  first  report  was  presented  in  1899,  a 
careful  review  of  methods  of  railway  control,  with  special 
attention  devoted  to  English,  American,  and  Canadian 
experience.^  Professor  McLean  strongly  favored  a  com- 
mission of  the  American  type  with  due  modifications  to 
suit  Canadian  conditions.  In  regard  to  the  Railway  Com- 
mittee of  the  Privy  Council  he  said:  — 

The  defects  of  the  Railway  Committee  as  regulator  of  rail- 
way transportation  I  wovJd  place  under  the  following  heads:  — 
(1)  it  has  a  dual  fimction  —  political  and  administrative; 

!    *  Report  of  the  Railway  Rates  Commission  (1895),  p.  15. 

2  Reports  upon  Railway  Commissions,  Railioay  Rate  Grievances,  and 
Regulative  Legislation  (1902). 


MACHINERY  OF  CONTROL  OVER  RATES       83 

(2)  the  lack  of  migratory  organization  renders  it  impossible 
to  deal  effectively  with  complaints; 

(3)  the  distance  to  be  travelled  by  the  complainants  renders 
the  expense  too  great; 

(4)  there  is  a  lack  of  technical  training  for  the  work; 

(5)  the  existing  organization  is  not  sufficiently  permanent.^ 

As  an  illustration  of  its  ineffectiveness  as  a  rate  tribunal 
Mr.  McLean  pointed  out  that  of  four  hundred  and  eight 
cases  that  came  before  it  between  January,  1889,  and 
December,  1896,  only  seven  dealt  with  rates,  and  one  of 
these  was  dismissed  because  the  Committee  had  no  juris- 
diction. He  attributed  this  to  the  expensiveness  of  the 
procedure,  declaring  that  country  communities  had  not 
had  their  interests  adequately  protected,  and  that  many 
legitimate  complaints  had  not  come  before  the  tribunal. 

Mr.  McLean  was  instructed  to  continue  his  investigation 
and  in  1902  submitted  a  further  report  dealing  specifi- 
cally with  rate  grievances  in  connection  with  Canadian 
railways.^  Classification,  distributive  rates,  competitive 
and  non-competitive  traffic,  minimum  weights,  discrimi- 
nation, excessive  charges,  and  other  causes  of  complaint 
were  in  turn  investigated  and  reported  upon.  In  each  in- 
stance the  need  and  ability  of  a  mobile,  inexpensive, 
technically  equipped  commission  to  handle  the  problems 
involved  was  vigorously  set  forth.  The  whole  report  was 
thus  an  imposing  argument  for  the  displacement  of  the 
Railway  Committee  and  the  establishment  of  a  commis- 
sion. The  report  carried  conviction  and  the  end  advocated 
was  attained  by  the  Railway  Act  of  1903  ^  which  estab- 
lished the  present  Board  of  Railway  Commissioners. 

§  4.  The  Canadian  Board  of  Railway  Commissioners  is 
thus  the  product  of  considerable  experimentation  in  rail- 
way control.  It  represents  the  latest  step  in  an  evolution 
that  has  gone  on  under  the  prod  of  discontent  and  dissatis- 

^  Reports  upon  Railway  Commissions,  Railway  Rate  Grievances,  and 
Regulative  Legislation  (1902),  p.  37  ff. 

*  The  two  reports  are  bound  together.  '  3  Edw.  VII,  c.  68. 


84  CANADIAN  RAILWAY  RATES 

faction  for  over  half  a  century.  The  final  adjustment  was 
made  in  1903  in  response  to  an  unsatisfactory  rate  situa- 
tion, but  the  solution  on  that  occasion  went  beyond  the 
immediate  cause  and  endeavored  to  place  the  control- 
relationship  of  the  Government  to  the  railways  on  an 
adequate  and  permanent  basis.  In  the  attempt  to  accom- 
plish this  end  English  and  American  experience  was  freely 
drawn  upon  and  through  the  medium  of  Professor  Mc- 
Lean's reports  made  easily  available  to  the  Minister  of 
Railways,  Hon.  A.  G.  Blair,  and  the  other  legislators  who 
were  shaping  the  bill.  As  a  result  the  measure  combines 
the  solid  teachings  of  experience  with  the  most  advanced 
and  most  carefully  thought-out  methods  of  public  control. 
No  piece  of  legislation  enacted  in  recent  years  in  Canada 
has  won  greater  approval.  "The  history  of  the  Railway 
Commission  since  its  establishment  in  1903  has  been  one  of 
constantly  expanding  jurisdiction.  The  original  act  con- 
ferred powers  greatly  in  excess  of  those  enjoyed  by  the 
Railway  Committee  and  by  the  Legislature  and  judicial 
decisions  since  that  time  the  jurisdiction  of  the  Board  has 
been  extended  and  confirmed  until  as  an  executive  and 
judicial  body  it  now  exercises  a  quite  unique  authority."  ^ 
The  Act  of  1903  created  a  Board  of  three  commissioners 
appointed  by  the  Governor-in-Council,  to  hold  oflSce  for 
a  period  of  ten  years.^  Unless  disqualified  by  age,  com- 
missioners might  be  reappointed.  One  commissioner  was 
to  be  Chief  Commissioner  of  the  Board,  and  a  second 
Deputy  Chief  to  act  in  the  former's  absence.  To  the  Chief 
Commissioner  was  given  the  power  of  determining  any 
question  which  in  the  opinion  of  the  commissioners  was 
a  question  of  law.  An  amendment  to  the  act  in  1908  ^  in- 
creased the  number  of  commissioners  to  six  and  provided 
for  an  Assistant  Chief  Commissioner.  The  office  of  Chief 

*  MacMurchy  and  Dennison,  op.  cit.,  p.  49. 

*  Professor  McLean  recouunended  life  tenure;  op.  cit,  p.  78.  The  age 
limit  is  seventy-five  years. 

3  7  &  8  Edw.  VII,  c.  62. 


MACmNBRY  OF  CONTROL  OVER  RATES       85 

Commissioner  was  limited  to  a  judge  of  a  superior  court 
or  an  advocate  or  barrister  of  ten  years'  standing.  The 
power  of  the  Board  to  hold  sittings  elsewhere  than  at 
Ottawa  was  extended  to  permit  of  more  than  one  sitting 
being  held  at  the  same  time.  Two  were  constituted  a 
quorum,  except  in  an  ex  'parte  application,  when  one  com- 
missioner might  act.  Ample  provision  was  made  for  a 
staff  of  experts  to  enable  the  Board  to  carry  on  its  work 
of  inspection  and  control.  For  the  year  ending  March  31, 
1916,  apart  from  the  commissioners  the  permanent  staff 
consisted  of  ninety-one  members,  of  whom  thirteen  be- 
longed to  the  traffic  department,  eleven  to  the  engineering 
department,  and  twenty-one  to  the  operating  department.^ 

The  Board  has  power  ^  to  inquire  into,  hear,  and  deter- 
mine any  complaints  arising  out  of  a  failure  to  fulfill  the 
requirements  of  the  Railway  Act,  "or  any  special  act  or 
regulation  made  thereunder  by  the  Governor-in-Council, 
the  Minister,  the  Board,  or  any  inspecting  engineer."  JIt 
inherits  all  the  powers  of  the  Railway  Committee  of  the 
Privy  Council.  It  may  issue  mandatory  and  restraining 
orders,  and  has,  in  regard  to  attendance,  the  production 
of  documents,  and  the  enforcement  of  orders,  all  the  powers 
of  a  Superior  Court.  The  appointment  of  a  receiver  does 
not  oust  its  jurisdiction.  It  may  act  upon  its  own  motion, 
may  review  its  own  orders.  It  is  a  court  of  record  and  as 
such  its  findings  are  authoritative  as  to  fact. 

For  the  purpose  of  the  act  it  has  full  jurisdiction  "to 
hear  and  determine  all  matters  whether  of  law  or  fact." 
"Its  decisions  are  reviewable  only  by  the  Governor-in- 
Council  and  in  certain  cases  by  the  Supreme  Court  of 
Canada.  Even  when  it  acts  without  jurisdiction,  objec- 
tion must  be  taken  in  this  way  and  cannot  be  taken  in 
collateral  proceedings  in  any  court."  ^ 

^  Eleventh  Report  of  the  Board  of  Railway  Commissioners,  p.  392. 

*  Sections  10  ff.  of  the  Railway  Act. 

'  MacMurchy  and  Dennison,  op.  dt.,  p.  49. 


86  CANADIAN  RAILWAY  RATES 

To  these  extensive  powers  were  added  in  1908  a  limited 
jurisdiction  as  to  agreements.  ^  In  case  of  a  breach  of  agree- 
ment touching  "the  provision,  construction,  reconstruc- 
tion, alteration,  installation,  operation,  use,  or  mainten- 
ance" of  "any  structure,  appliance,"  etc.,  in  connection 
with  a  railway,  the  Board  may  hear  and  make  an  order 
reasonable  and  expedient  and  take  the  necessary  steps  to 
enforce  the  same.  These  powers  trench  on  the  domain  of 
the  common  law  and  give  the  Board  something  of  an 
equity  jurisdiction.  The  line  of  demarkation  has  not  yet 
been  clearly  defined  by  judicial  interpretation.  It  is  evi- 
dent that  even  wider  inroads  are  to  be  made  upon  the 
jurisdiction  of  the  ordinary  courts.  In  a  consolidation  of 
the  Railroad  Act  before  Parliament  since  1914  provision 
is  made  for  the  refund  of  payments  in  excess  of  the  legal 
toU,^  a  provision  that  naturally  grows  out  of  the  Board's 
powers  to  determine  when  rates  are  excessive  or  unfair. 
Indeed,  successive  amendments  to  the  act  are  continually 
enlarging  its  scope. 

In  certain  respects  the  Board  as  it  is  at  present  consti- 
tuted is  unlike  a  coiu-t.  The  latter  remains  the  ordinary 
avenue  of  relief  for  cases  arising  out  of  tort,  and,  with  the 
exception  noted,  of  contract.  The  Board  does  not  award 
damages  nor  is  it  retroactive.  Its  decisions  are  remedial 
and  corrective  in  intent,  endeavoring  to  remedy  a  condi- 
tion rather  than  to  punish  a  dereliction.^  Thus,  in  the 
Eastern  Rates  Case  the  railways  filed  an  exhibit  showing 
that,  in  complying  with  the  orders  of  the  Board  in  matters 
affecting  safety  and  protection,  there  had  been  a  capital 
expenditure  down  to  December  31,  1913,  of  $3,073,736.23 
and  that  the  amount  spent  in  1914  was  $416,349,27.  In 
addition  to  this,  charges  for  maintenance  and  operation, 
necessitated  by  orders  of  the  Board,  in  connection  with 

1  Section  26  A,  7-8  Edw.  VII,  61.  «  7  Geo.  V.  c.  13  (1917). 

'  Cp.  Judgments,  Order,  etc.,  of  the  Board  oj  Railway  Commissionera 
for  Canada,  vol.  vi,  p.  37. 


MACHINERY  OF  CONTROL  OVER  RATES   87 

highway  crossing  protection,  fire  protective  appliances 
on  locomotives,  inspection  of  cars  for  compliance  with 
safety  standards,  etc.,  were  computed  at  $112,332.56.^ 

In  cases  of  rates  when  a  complaint  is  made  the  onus 
of  their  reasonableness  lies  upon  the  railways.  The  Board 
does  not  originate  rates  but  may  indicate  in  a  given  in- 
stance what  would  be  a  reasonable  charge.  Its  dual  aspect 
as  an  administrative  commission  and  a  quasi- judicial  body 
is  well  exhibited  by  the  rights  of  appeal.  "Due  process" 
is  conserved  by  the  right  of  appeal  to  the  Supreme  Court 
upon  questions  of  jurisdiction,  but  the  "appeal  shall  not 
lie  unless  the  same  is  allowed  by  a  judge  of  the  same 
court."  2  "On  the  hearing  of  any  appeal  the  court  may 
draw  all  such  inferences  as  are  not  inconsistent  with  the 
facts  expressly  found  by  the  Board."  The  Board  may 
also,  on  its  own  motion  or  upon  the  application  of  any 
party,  state  a  case  for  the  Supreme  Court,  "upon  any 
question  which  in  the  opinion  of  the  Board  is  a  question 
of  law." 

On  the  other  hand,  the  objection  that  the  Board  might 
be  independent  of  Government  control,  with  practically 
"  irresponsible  authority,"  ^  urged  by  the  Royal  Commis- 
sion of  1888,  has  been  obviated  by  retaining  an  appeal 
to  the  Governor-in-Council.  "The  Governor-in-Council 
may  at  any  time  in  his  discretion,  either  upon  the  petition 
of  any  party,  person,  or  company  interested,  or  of  his  own 
motion  and  without  any  petition  or  application,  vary  or 
rescind  any  order,  decision,  rule,  or  regulation  of  the 
Board,  and  any  order  which  the  Governor-in-Council  may 
make  with  respect  thereto  shall  be  binding  upon  the  Board 
and  upon  all  parties."  Since  the  organization  of  the 
Board  there  have  been  thirty  cases  carried  to  the  Supreme 
Court,  twenty-seven  of  these  have  been  disposed  of,  eight- 

^  Judgments,  Orders,  etc.,  of  the  Board  of  Railway  Commissioners  for 
Canada,  vol.  vi,  p.  251. 

2  3  Edw.  VII,  c.  58,  sees.  55-56.  a  Ante.  p.  80. 


88  CANADIAN  RAILWAY  RATES 

een  appeals  being  dismissed  and  nine  allowed.  There 
have  been  seventeen  appeals  to  the  Governor-in-Council 
up  to  March  31,  1916;  of  these  ten  have  been  dismissed, 
three  have  been  allowed,  two  were  withdrawn,  and  two 
are  still  pending.  In  nine  cases  decisions  affecting  rates 
and  traffic  have  been  appealed  to  the  Supreme  Com't.  In 
three  of  these  cases  the  appeal  was  allowed  on  questions 
of  jurisdiction. 

Being  a  statutory  tribunal  the  Board  of  Railway  Com- 
missioners must  rely  for  its  authority  upon  the  Canadian 
Railway  Act.  A  warrant  must  be  found  in  the  act  for  its 
orders  or  they  are  null  and  void.^  If  we  tm-n  to  the  act  we 
find  its  most  noticeable  feature  to  be  the  wide  reach  of 
control  that  it  assumes  and  has  given  into  the  custody 
of  the  Board.  The  only  limitation  upon  the  power  it  has 
conferred  are  the  terms  of  the  Act  of  Confederation  which 
are  binding  upon  the  Dominion  Parliament.  By  this  act 
railways  connecting  one  or  more  Provinces  are  under  the 
control  of  the  Federal  Government.  Any  other  railroad 
may  be  brought  under  its  control  by  Parliament  legislat- 
ing that  the  line  is  in  "the  general  interests  of  Canada." 
Under  this  provision  the  Parliament  of  Canada  has 
brought  most  of  the  railways  in  Canada  under  its  control, 
no  matter  whether  their  charters  antedated  general  Do- 
minion legislation  or  were  granted  by  one  of  the  Provinces. 
A  continuous  process  of  extension  of  control  is  going  on. 
The  Act  of  1903  has  been  amended  nearly  twenty  times 
and  been  consolidated  once.  Another  consolidation  is  on 
the  way.  The  feature  of  these  amendments  is  the  widened 
range  of  activity  they  have  opened  to  the  Board.  Express 
companies,  telegraph  and  telephone  lines,  and  electrical 
power  when  obtained  from  water  power  leased  from  the 
Crown  have  all  been  brought  within  its  purview.  An 
attempt  is  being  made  to  extend  its  control  to  rates  and 
facihties  in  connection  with  overseas  carriage  and  com- 
»  Grand  Trunk  Railway  vs.  City  of  Toronto,  1  C.B.C.  92. 


MACHINERY  OF  CONTROL  OVER  RATES       89 

munication  with  the  concurrence  of  the  Imperial  Par- 
liament, "The  evident  tendency  of  recent  legislation  is 
to  place  all  matters  connected  with  the  methods  of  rail- 
way construction  and  operation  under  the  exclusive  con- 
trol of  one  authority,"  *  declares  a  leading  Canadian 
authority.  The  signs  of  the  times  are  not  lacking  that  an 
even  more  extensive  control  is  contemplated  —  a  control 
that  comprehends  all  the  instruments  of  transportation. 

The  powers  of  the  Board  as  exercised  fall  into  three 
broad  divisions:  the  initial  location  and  construction  of  a 
line;  ^  regulations  covering  safety  and  convenience  in 
operation;  and  the  regulation  of  tariffs  and  tolls.  It  is  to 
be  remembered  that  the  first  Canadian  Board  of  Railway 
Commissioners  was  authorized  in  connection  with  the  con- 
struction of  the  trunk  line  by  the  Act  of  1851.^  Their 
certificate  that  the  line  had  been  duly  built  was  a  neces- 
sary prerequisite  to  the  payment  of  Government  aid. 
The  Consolidated  Act  of  1859  ^  expanded  its  functions  to 
include  reports  on  lines  to  be  built,  and  the  sanctioning 
of  the  opening  of  roads.^  The  latter  provision  was  inserted 
in  the  interests  of  public  safety.  The  present  act  enlarges 
upon  these  duties.^  The  present  Board  has  now  a  second- 
ary control  over  the  location  of  the  line.  After  the  general 
plan  has  been  submitted  to  the  Minister  of  Railways  and 
Canals  and  approved,  the  railway  company  must  prepare 
and  file  with  the  Board  a  plan,  profile,  and  book  of  refer- 
ence which  must  be  approved.  Further,  the  Board  controls 
the  taking  of  land  of  other  companies  where  this  is  con- 
sidered desirable  in  the  public  interest,  and  may  authorize 
a  company  to  use  "the  right  of  way,  tracks,  terminals, 
stations  or  station  grounds  of  any  other  railway  company." 

*  MacMurchy  and  Dennison,  op.  cit.,  p.  49. 

*  These  powers  are  likely  to  be  greatly  enlarged  in  the  not  distant 
future. 

»  14-15  Vic,  c.  73.  *  Consolidated  Statutes  (1859),  c.  66. 

'  Powers  later  absorbed  by  the  Railway  Committee. 

*  Sections  150,  263. 


90  CANADIAN  RAILWAY  RATES 

Further,  the  Board  approves  the  construction  of  branch 
lines  not  exceeding  six  miles  in  length,  crossings,  junctions, 
highway  diversions,  and  connections  with  intersecting 
hues.  No  railway  or  branch  may  be  opened  for  traflfic  until 
favorably  reported  upon  by  one  of  the  Board's  engineers, 
and  an  inspecting  engineer  may  forbid  the  operation  of  a 
line  "  until  alterations,  substitutions,  or  repairs  are  made 
thereon."  Of  2803  applications  made  to  the  Board  for 
the  year  ending  March  31,  1916,  at  least  one  half  grew  out 
of  these  provisions  of  the  Railway  Act.^ 

The  measures  for  safety  and  convenience  of  operation  ^ 
include  the  general  requirement  that  every  railway  com- 
pany shall  use  modern  and  efficient  apparatus  and  the 
Board  has  the  authority  to  determine  when  the  appara- 
tus is  efficient.  The  Board  must  also  provide  for  the  uni- 
formity of  rules  for  the  operation  and  running  of  trains, 
as  well  as  for  the  rate  of  speed  in  cities,  the  installation  of 
safety  devices,  and  accommodation  for  traffic.  These  are 
important  featm-es  of  the  Board's  duties  under  the  act. 
During  the  year  1914-15  one  hundred  and  sixty-four  appli- 
cations were  made  in  connection  with  the  safety  of  bridges, 
in  1915-16,  sixty-nine,  while  the  location  and  maintenance 
of  stations  were  responsible  in  1914-15  for  two  hundred 
and  fifty-seven,  in  1915-16,  one  hundred  and  twenty- 
seven.^  The  number  of  these  applications  varies  consid- 
erably, as  they  depend  in  part  upon  the  amount  of  rail- 
road construction  in  progress.  Thus,  for  the  year  ending 
March  31, 1915,  covering  a  period  when  considerable  length 
of  line  was  approaching  completion,  the  total  number  of 
applications  made  to  the  Board  was  4047. 

The  positive  enactments  of  the  statute  in  connection 
with  tolls  and  traffic  are  contained  in  forty-seven  sections,* 
which  set  forth  in  particular  as  well  as  generic  terms  the 

1  Eleventh  Report  of  the  Board  of  Railway  Commissioners,  etc.,  p.  415. 

2  Sections  264  ff.       3  Tenth  Report,  p.  438;  Eleventh  RepoH,  p.  415  ff. 
4  Sections  314  ff. 


MACHINERY  OF  CONTROL  OVER  RATES       91 

obligations  of  the  railroads  to  the  public  in  their  capacity 
of  common  carriers.  Tariffs  are  to  be  prepared  under  the 
authorization  of  by-law  and  must  be  submitted  to  and 
approved  by  the  Board.  In  actual  practice  the  interested 
shippers  and  the  representatives  of  the  railways  endeavor 
to  resolve  their  differences  before  a  formal  case  in  connec- 
tion with  the  validation  of  a  tariff  comes  before  the  Board. 
There  is  considerable  latitude  given  to  the  commissioners. 
The  equality  clause  provides:  "all  such  tolls  shall  always, 
under  substantially  similar  conditions,  in  respect  of  all 
traflSc  of  the  same  description,  and  carried  in  or  upon  the 
like  kind  of  cars,  passing  over  the  same  portion  of  the  line 
of  railway,  be  charged  equally  to  all  persons  and  at  the 
same  rate,  whether  by  weight,  mileage,  or  otherwise." 
The  long-  and  short-haul  sub-section,  however,  is  re- 
tained from  the  earlier  act  and  provides  that  "the  tolls 
for  larger  quantities,  greater  numbers,  longer  distances 
may  be  proportionately  less  than  the  tolls  for  smaller  quan- 
tities or  numbers,  or  shorter  distances,  if  such  tolls  are 
under  substantially  similar  circumstances,  charged  equally 
to  all  persons.'*  Tolls  shall  not  be  greater  for  a  shorter 
than  for  a  longer  distance  in  the  same  direction  over  the 
same  line  unless  the  Board  deem  it  expedient  owing  to 
competition. 

Pooling  is  prohibited  except  at  the  discretion  of  the 
Board. 

Service  and  facilities  are  to  be  provided  without  dis- 
crimination. Companies  must  "afford  to  all  persons  and 
companies  all  reasonable  and  proper  facilities  for  the  re- 
ceiving, forwarding,  and  delivering  of  traffic  upon  and 
from  their  several  railways,  for  the  interchange  of  traffic 
between  their  respective  railways,  and  for  the  return  of 
rolling  stock." 

The  Board  has  complete  authority  over  freight  classi- 
fication. "The  tariff  of  tolls  for  freight  traffic  shall  be  sub- 
ject to  and  governed  by  that  classification  which  the  Board 


92  CANADIAN  RAILWAY  RATES 

may  prescribe  or  authorize,  and  the  Board  shall  endeavor 
to  have  such  classification  uniform  throughout  Canada, 
as  far  as  may  be,  having  due  regard  to  all  proper  interests." 
For  international  traffic  it  may  approve  of  any  classifica- 
tion of  use  in  the  United  States. 

Tariffs  are  to  be  divided  into  three  classes:  the  standard 
freight  tariff,  special  freight  tariffs,  and  competitive  tariffs. 
All  of  these  must  be  filed  and  approved.  Where  an  increase 
in  rate  is  contemplated,  ten  days'  notice  must  be  given; 
m  case  of  reduction,  three  days.  Competitive  tariffs,  how- 
ever, under  certain  regulations  of  the  Board,  "  to  meet  the 
exigencies  of  competition  may  be  acted  upon  immediately 
and  put  in  operation  immediately  upon  the  issue  thereof,  by 
the  company,  before  they  have  been  filed  with  the  Board." 

Joint  tariffs  are  to  be  filed  by  the  initial  company  and 
the  other  companies  affected  must  notify  the  Board  of 
concurrence.  In  the  case  of  agreements  concerning  car- 
riage by  water  between  Canadian  ports,  with  railway  con- 
nections, commodities  shall  be  deemed  to  be  carried  by  a 
continuous  route.  When  there  is  a  failure  of  two  or  more 
companies  to  arrive  at  a  joint  tariff  for  what  the  Board  con- 
siders "a  reasonable  and  practicable  route,"  it  may  "by 
order  determine  the  route,  fix  the  toll  or  tolls,  and  appor- 
tion the  same  among  the  companies  interested."  Joint 
tariffs  must  also  be  filed  for  international  traffic,  as  well 
as  for  traffic  passing  from  one  point  in  Canada  to  another 
by  foreign  lines. 

These  are  the  principal  provisions  of  the  Railway  Act 
relating  to  tolls  and  traffic.  They  amply  clothe  the  Board 
with  authority  to  regulate  the  rates  and  service  in  the  in- 
terests of  equality  and  justice.  Moreover,  the  continuous 
amendment  of  the  act  with  a  view  to  more  effective  and 
wider  control  has  enabled  the  Commission  to  strengthen 
its  authority  where  a  weak  point  has  been  disclosed  by 
experience.  In  respect  to  the  number  of  applications  made 
under  the  tolls  section  of  the  act,  however,  they  were 


MACHINERY  OF  CONTROL  OVER  RATES   93 

quite  markedly  in  the  minority  compared  with  applica- 
tions under  other  sections.  For  the  year  1915-16  applica- 
tions that  could  in  general  be  brought  under  this  head 
numbered  one  hundred  and  twenty-three.  Of  this  num- 
ber twenty-two  had  to  do  with  interswitching,  twelve 
with  freight  classification,  and  nine  with  standard  freight 
tariffs.  Thirteen  more  dealt  with  special  tariffs  and  nine 
with  carriage  by  express.^  These  are  the  main  classes  into 
which  the  applications  fell.  The  other  cases  are  scattered 
over  a  variety  of  complaints  of  varying  degrees  of  impor- 
tance. The  number  and  grouping  of  these  applications 
are  typical  of  the  distribution  of  cases  of  this  nature  since 
the  Board  took  up  its  work. 

A  statistical  analysis  of  decisions  rendered  is  not  an 
indication  of  the  importance  of  this  function  of  the  Board. 
Many  of  the  adjustments  which  the  Board  is  called  upon 
to  make  in  its  other  capacities  are  of  local  importance 
only,  but  the  incidence  of  a  rate  decision  or  traffic  adjust- 
ment extends  far  and  wide,  affecting  not  only  the  parties 
directly  applying,  but,  through  its  influence  upon  prices 
and  production,  a  wide  area  of  consumers  and  producers. 
Rate  decisions  have  a  general  importance  that  no  other 
class  of  decisions  that  the  Board  is  called  upon  to  make, 
possesses.  The  Western  Rates  Case,  adjudicated  in  1914, 
affected  the  people  of  the  four  Western  Provinces,  and, 
in  scope  of  influence,  exceeded  in  importance  any  previous 
decision  of  the  Board.  The  Eastern  Rates  Case  of  1916, 
granting  a  general  increase  in  tolls  to  railway  companies 
operating  in  Ontario,  Quebec,  and  the  Maritime  Provinces, 
directly  touched  the  producing  costs  of  the  great  bulk  of 
home-manufactured  goods  consumed  by  the  Canadian 
people.  The  absence  of  a  greater  number  of  complaints  is 
probably  due  also  to  the  careful  supervisory  work  of  the 
Board  in  connection  with  the  initial  issuance  of  tariffs  and 
classifications.  -^ 

'  Eleventh  Report  of  the  Board  of  Railway  Commissioners,  p.  415. 


94  CANADIAN  RAILWAY  RATES 

To  recapitulate,  briefly,  the  scope  of  the  Board  includes: 
(1)  supervision  of  the  initial  location  of  lines,  sidings,  and 
switchings,  with  inspection  before  they  are  put  into  use;  (2) 
regulations  covering  the  safety  and  convenience  of  lines 
in  operation;  (3)  regulations  covering  freight  classifica- 
tion, tariffs,  and  tolls;  and  (4)  the  investigation  and  adju- 
dication of  complaints  of  injustice  with  respect  to  any  of 
these  features. 

As  already  pointed  out,  of  these  duties  the  problem  of 
determining  equitable  rates  has  from  the  first  been  one  of 
the  Board's  most  important  tasks.  In  connection  with 
other  duties  the  Board  has  in  the  main  been  the  legatee 
of  the  Railway  Committee  of  the  Privy  Council  and  the 
earlier  Board  of  Railway  Commissioners.  But  the  power 
to  determine  equitable  rates  is  the  distinguishing  charac- 
teristic. Because  of  this  fact  an  examination  of  the  theo- 
ries which  have  guided  the  Board  in  making  its  awards 
has  been  selected  as  the  major  part  of  this  study.  The  aim 
is  to  examine  these  decisions  in  the  light  of  the  histori- 
cal background  with  which  the  first  part  of  this  study  has 
dealt.  We  have  seen  the  gradual  development  of  trans- 
portation systems  by  both  land  and  water,  growing  up 
under  the  influence  of  active  State  sympathy  and  help. 
We  have  also  seen  the  gradual  evolution  of  means  of  pub- 
lic control  lest  these  systems  become  huge  Frankensteins 
injurious  to  the  private  citizens  and  to  the  State.  The 
mediating  body  between  these  two  classes  of  ideas  is  the 
Board  of  Railway  Commissioners.  Hence,  while  this  study 
hopes  to  present  the  development  of  principles  of  rate  the- 
ory in  Canada,  its  larger  purpose  is  to  show  that  these  prin- 
ciples are  a  natural  outgrowth  of  or  reaction  to  Canadian 
geographical  facts  and  Canadian  transportation  history. 


PART  II 

RATE   REGULATION   AND   THE  BOARD  OF 
RAILWAY  COMMISSIONERS 


CHAPTER  VI 

KATE  THEORIES   DEVELOPED   IN  CONNECTION 
WITH  THE  CHARGE   OF   EXCESSIVE   RATES 

§  1.  In  the  twelve  years  of  its  history  approximately 
two  hundred  and  fifty  cases  of  importance,  in  which  the 
issue  touched  rates,  have  come  before  the  Board  of  Rail- 
way Commissioners  for  Canada.  While  all  of  these  cases 
have  concerned  toUs,  the  precise  form  of  the  problem  has 
varied  from  the  direct  appeal  for  rehef  against  excessive 
rates  to  less  obvious  charges  of  discrimination  or  injustice 
in  the  matter  of  terminal  interswitching,  refusal  to  agree 
on  joint  rates,  or  some  similar  complaint  with  implica- 
tions of  rate  injustice.  There  has  been  a  correspondingly 
wide  variation  in  the  importance  of  these  decisions.  The 
value  of  a  decision  may  be  estimated  in  two  distinct  ways. 
A  relatively  simple  case,  possibly  because  of  the  absence  of 
disturbing  factors,  may  draw  forth  an  enunciation  of  prin- 
ciple thereafter  appHed  and  confirmed  in  later  adjudica- 
tions as  the  Board's  settled  ruling  on  that  phase  of  rate 
determinations.  On  the  other  hand,  there  are  cases  which 
challenge  examination  either  because  of  the  wide  social 
or  commercial  interests  at  stake  or  because  of  the  keen- 
ness with  which  the  whole  is  presented.  In  these  cases  the 
decision  may  rest  finally  upon  principles  previously  de- 
veloped and  adopted. 

Our  business  is  primarily  with  the  first  type  of  judg- 
ment, but  since  no  two  cases  are  exactly  alike  and  since 
principles  of  adjudication  are  modified,  narrowed,  or  ex- 
panded by  different  collateral  circumstances,  there  will 
be  occasion  to  refer  to  and  examine  a  wider  range.  It  does 
not  seem  necessary,  however,  in  entering  upon  this  sur- 


98  CANADIAN  RAILWAY  RATES 

vey  of  the  Board's  rate  theories  to  go  beyond  the  data 
which  the  opinions  of  the  Board  afford.  Fundamental 
rate  theories  have  been  adequately  enough  explored  for  the 
present  purpose  by  several  writers,  so  that  the  task  here 
may  be  limited  to  setting  forth  the  relative  extent  to  which 
each  principle  of  rate-making  familiar  to  students  of  eco- 
nomics has  become  a  part  of  the  policy  of  the  Board.  As 
already  stated  this,  indeed,  is  the  central  aim  of  the  study: 
to  discover  and  appraise  the  relative  importance  of  the 
economic  theories  which  guide  the  Canadian  Railway  Com- 
mission in  determining  what  are  fair  and  reasonable  rates, 
and  to  show  in  what  degree  their  relative  importance  is  a 
natural  outcome  of  the  Canadian  railway  situation.  In 
addition,  an  attempt  will  be  made  to  estimate  the  influ- 
ence of  the  Commission  on  Canadian  commercial  develop- 
ment. 

There  are  three  main  categories  into  which  appeals 
against  railway  tolls  have  fallen.  It  is  charged  that  the 
rate  in  itself  is  unreasonable  or  excessive  without  regard  to 
what  rates  exist  upon  other  traffic.  The  transaction  is 
viewed  as  one  solely  between  the  particular  shipper  or 
body  of  shippers  and  the  carrier  or  carriers.  Rates  granted 
to  other  goods  are  not  in  question.  Secondly,  it  may  be 
charged  that  the  rate  is  unfair  or  unduly  discriminative. 
In  this  instance  the  basis  of  the  attack  is  an  invidious  com- 
parison between  the  rates  in  question  and  those  accorded 
to  other  traflSc.  The  third  group  of  cases  relate  in  the  main 
to  occasions  where  the  rate  is  not  alleged  to  be  either  ex- 
cessive or  discriminative  in  the  narrower  sense  but  where 
the  shifting  currents  of  competition  and  trade  have  tended 
to  increase  rates  which  before  were  on  a  lower  scale,  or 
where  the  Board  has  been  asked  to  protect  or  extend  a 
rate  granted  under  special  circumstances  or  conditions. 
The  considerations  which  have  been  urged  in  cases  of  this 
sort  largely  concern  the  wider  problems  of  commercial 
development. 


EXCESSIVE  RATES  99 

In  the  determination  of  cases  under  the  unique  condi- 
tions which  obtain  in  Canada  the  Board  has  developed  a 
body  of  doctrine  which  within  the  Dominion  is  at  once  a 
counsel  of  perfection  to  the  rate-maker  and  a  ground  of 
appeal  to  the  shipper  against  felt  injustice.  The  findings 
of  the  Board  have  a  wider  interest  also  in  so  far  as  the  prob- 
lems solved  represent  applications  of  known  principles  to 
new  conditions.  As  there  will  be  occasion  to  point  out 
later  on,  the  Board  has  profited  by  the  experience  of  the 
regulative  bodies  of  England  and  of  the  United  States, 
but  while  that  is  true  it  has  a  tradition  of  its  own  built 
upon  its  own  experience.  Since  its  organization  it  has  been 
called  upon  to  consider  nearly  every  phase  of  the  rate 
problem  and  to  justify  its  decision  upon  the  basis  of  its 
own  reasoning.  We  may  therefore  turn  to  its  opinions 
with  some  confidence  that  the  main  lines  of  rate  theory 
as  developed  in  Canada  by  the  Board  are  laid  down  and 
are  capable  of  definition. 

The  task  of  propounding  rate  theories  in  this  connec- 
tion has  devolved  largely  in  Canada  upon  the  railway  com- 
panies. This  is  easily  accounted  for.  The  Board  has  re- 
peatedly held  that  the  previous  existence  of  a  particular 
rate  voluntarily  established  is  evidence  of  its  reasonable- 
ness, and  that  the  onus  of  disproof  rests  upon  the  party 
desiring  to  disturb  existing  arrangements.^  In  the  great 
majority  of  cases  the  railroads  have  been  the  parties  who 
desired  to  make  a  change.  But,  by  this  presumption, 
whenever  they  have  wished  to  advance  their  tolls  they 
have  had  to  be  prepared  to  justify  the  change  before  the 
Board.  In  two  or  three  important  cases  the  attack  has  been 
upon  existing  rates  as  excessive,  but  generally  the  prob- 
lem has  come  before  the  Commission  in  the  other  form. 

»  1/73;  3/148;  5/207;  7/270;  7/233;  5/269.  (Note:  Reference  un- 
less otherwise  stated  is  to  the  Annual  Reports  of  the  Board.  The  first 
figure  gives  the  number  of  the  Report  —  the  second  the  page;  e.g.,  1/73: 
First  Report  of  the  Board  of  Railway  Commissioners  for  Canada,  p.  73.) 


100  CANADIAN  RAILWAY  RATES 

In  regard  to  the  principles  upon  which  railway  rates 
should  be  based  the  Board  very  properly  has  adopted  a 
cautious  attitude,  and  has  refused  to  lay  down  general 
criteria  of  reasonableness.  In  a  general  order  in  respect  to 
joint  freight  and  passenger  tariffs  the  Board  was  asked  to 
sanction  the  presumption  that  where  joint  rates  exceeded 
the  sum  of  the  local  rates  they  were  unreasonable.  The 
Board  held  that  the  unreasonableness  of  a  rate  or  rates 
should  be  established  as  a  matter  of  fact  and  not  as  a  mere 
presumption.  "It  is  impossible,"  it  said,  "to  determine 
the  reasonableness  of  a  rate  aside  from  the  concrete  con- 
ditions it  is  concerned  with."  "There  is  no  yardstick  of 
reasonableness."  ^  Thus  again  recently,  in  June,  1916,  the 
Board  dealt  with  the  general  structure  of  rates  in  Eastern 
Canada  in  the  Eastern  Rates  Case  and  authorized  increases, 
in  some  instances  quite  substantial.  Shortly  afterwards 
the  railway  companies  made  application  to  be  permitted 
to  increase  materially  their  import  rates,  on  the  ground 
that  they  were  on  a  relatively  low  basis.  The  Board,  point- 
ing out  that  the  import  rates  were  closely  related  to  the 
general  schedules  passed  upon  in  the  Eastern  Rates  judg- 
ment, refused  to  permit  action  until  the  effect  of  the  latter 
could  be  clearly  demonstrated.  It  declared:  — 

Theoretical  demonstration  really  amounts  to  nothing.  The 
actual  traffic  returns  alone  can  show  what,  under  the  new  condi- 
tions as  developed,  the  railway  situation  will  be.^ 

In  other  words,  the  Board  has  not  been  prepared  to  lay 
down  a  mechanical  rule  with  which  to  measure  rates.  It 
has  not  been  prepared,  so  far  as  appeals  of  that  nature 
are  concerned,  to  become  a  mere  recorder  of  the  automa- 
ticity  of  its  own  instrument  of  proof.  It  has  realized  the 
insufficiency  of  any  one  measure  of  reasonableness,  and 

»  5/217. 

*  VI  J.O.R.R.  381 .  ( The  Board  of  Railway  Commissioners  for  Canada : 
vol.  VI,  Judgments,  Orders,  Regulations,  and  Rulings.) 


EXCESSIVE  RATES  101 

has  relied  upon  different  tests  according  to  the  actual  cir- 
cumstances of  the  case.  But  while  there  has  been  this 
careful  reliance  upon  particular  facts  it  is  possible  to  re- 
duce the  Board's  general  position  to  more  definite  out- 
lines. It  is  possible,  indeed,  in  respect  to  the  question  of 
rates  reasonable  in  themselves  to  find  a  fundamental  hold- 
ing within  which  all  cases  alleging  excessive  rates  come, 
although  the  practical  difficulty  of  applying  this  controlling 
principle  to  every  case  presented  has  led  to  the  develop- 
ment of  secondary  tests  of  reasonableness.  That  is,  in  a 
number  of  instances  the  presence  or  absence  of  certain 
concrete  circumstances  or  conditions  have  been  deemed 
presumptive  evidence  that  the  rate  in  question  could  be 
shown,  if  probed  more  deeply,  to  traverse  this  fundamen- 
tal position  and  therefore  be  denied. 

§  2.  The  fundamental  holding  of  the  Board  is  that 
there  shall  be  a  fair  return  on  the  funds  actually  invested 
in  the  enterprise.  This  position  is  emphatically  taken  in 
The  Dawson  Board  of  Trade  vs.  The  White  Pass  &  Yukon 
Railway  Company  Case.^  The  road  in  question  has  a 
mileage  of  101.12  miles,  running  from  Skagway,  Alaska, 
to  White  Horse  in  the  Yukon  Territory.  It  is  a  link  in  the 
White  Pass  &  Yukon  route  to  Dawson  City.  It  was  con- 
structed in  1899-1900.  The  freight  rates  charged  on  con- 
siderable traffic  were  extremely  high  at  first.  Thus  the 
ratio  of  the  rate  on  car  lots  to  the  Skagway  price  of  the 
commodity  on  many  items  was  100  or  over.  Naturally, 
this  led  to  complaints.  In  1909  the  Board  concluded  that  it 
had  jurisdiction  over  through  traffic  upon  this  line  and 
ordered  tariffs  filed.  In  1911  the  Board  found  the  rates  as 
filed  excessive  and  ordered  a  substantial  reduction.  The 
company  then  took  an  appeal  to  the  Governor-in-Council, 
securing  from  the  Board  successive  suspensions  of  its 
order  until  the  Council  passed  up  the  appeal.   The  Privy 

^  The  name  of  this  company  has  been  changed  to  the  British  Yukon 
Railway  Company. 


102  CANADIAN  RAILWAY  RATES 

Council  gave  the  company  leave  to  apply  to  the  Board  for 
a  rehearing  of  the  whole  matter.  As  a  result  of  the  re- 
hearing, the  Board  rescinded  its  order,  the  railway  vol- 
untarily agreeing  to  make  certain  reductions. 

Not  only  does  this  case  plainly  exhibit  the  fundamental 
nature  of  this  holding,  but  it  also  reveals  the  truth  of  the 
observation  already  made  that  secondary  criteria  of  rea- 
sonableness are  presumed  to  be  in  consonance  with  the 
main  position.  When  the  charge  of  excessive  rates  was 
first  considered,^  the  railway  company,  in  its  defense, 
cited  figures  which  they  claimed  represented  the  cost  of  the 
road.  The  Board,  however,  pointed  out  that  there  was  no 
means  whereby  the  "costs  submitted  might  be  checked," 
and  that  there  was  no  information  to  show  that  the  fig- 
ures were  "conclusive  of  reasonableness."  They  were 
therefore  passed  over,  and  the  controlling  consideration 
in  the  first  decision  was  a  comparison  between  the  rates 
on  the  mountain  division  of  the  Canadian  Pacific  Railway 
and  the  rates  on  the  line  in  question.  The  results  of  this 
comparison  was  that  the  Board  ordered  a  reduction  of 
thirty-three  and  one-third  per  cent  on  all  rates  on  passen- 
ger and  freight  service.  The  railway  company  then  ap- 
pealed to  the  Privy  Council  and  obtained  its  permission 
to  have  a  rehearing. 

Meanwhile,  as  the  appeal  did  not  act  as  a  stay  to  the 
operation  of  the  order  for  reduction,  the  company  also 
applied  to  the  Board  for  a  suspension  of  the  order  until 
the  rehearing  could  be  had.  In  making  its  application  the 
railway  submitted  to  the  Board  figures  purporting  to 
show  that  if  the  order  for  reduction  had  actually  been  in 
force  for  the  year  191Q,  on  the  basis  of  the  traffic  carried, 
"the  railway  company  would  have  been  about  $44,000 
short  of  enough  money  to  pay  the  interest  upon  the  out- 
standing bonds."  In  brief,  the  order  of  the  Board  would 
probably  have  forced  the  company  into  a  receivership. 

»  6/349. 


EXCESSIVE  RATES  103 

In  granting  the  stay  '  until  the  rehearing  the  chairman  of 
the  Board  said :  — 

The  Board  never  intended  to  deprive  these  carriers  of  the  op- 
portunity of  earning,  first,  not  only  enough  to  pay  the  interest  upon 
their  bonds,  but,  secondly,  to  pay  a  fair  return  upon  the  actual 
capital  that  went  into  the  road  and  that  is  now  outstanding  in  the 
form  of  stock.  No  controlling  commission  has  got,  it  seems  to  us, 
the  right  or  the  jurisdiction  to  make  an  order  that  would  have 
the  effect  of  destroying  the  earning  power  of  the  capital  that 
honestly  went  into  the  facility,  and  it  is  hardly  necessary  for  me 
to  reiterate  that  this  Board  never  intended  to  make  such  an  order, 
and  if  it  is  ultimately  shown  that  the  order  we  made  has  that 
effect,  I  take  the  responsibility  of  saying  that  it  will  be  very 
promptly  rescinded. ^ 

Following  the  suspension  of  the  order,  upon  instruc- 
tion, the  chief  engineer  of  the. Board  prepared  an  elab- 
orate physical  valuation  of  the  road  which  showed  a  cost 
of  $48,738  per  mile.  He  refused,  however,  to  go  on  record 
as  saying  that  the  original  construction  did  not  cost  $62,- 
000  per  mile,  the  amount  claimed  by  the  company.  The 
earnings  of  the  company  were  shown  to  be  declining  and 
the  disparity  between  the  two  sets  of  figures  did  not  lead 
to  a  ruling  upon  the  question  of  what  valuation  the  Board 
would  base  its  estimate  of  capital  on.  The  Board  remarked 
that  in  view  of  the  lean  earnings  it  was  altogether  likely 
that  the  stockholders  would  be  glad  to  obtain  earnings  of 
"say  4  per  cent"  upon  the  engineer's  valuation  if  that 
were  possible. 

In  the  face  of  this  evidence  the  Board  rescinded  the 
order  it  had  previously  made.  To  the  allegations  of  enor- 
mously large  profits  earned  in  the  past  it  replied  to  the 
complainants:  — 

Had  the  management  been  as  economical  then  as  now,  with 
the  large  earnings  in  those  days,  no  doubt  substantial  reduc- 
tions could  have  been  made  without  hardship  upon  the  stock- 
holders; but  this  matter  can  be  dealt  with  only  upon  conditions 
as  they  exist  to-day  ' 

»    7/217  ff.  »  Ibid.,  p.  218.  '  Ibid.,  p.  221  S. 


104  CANADIAN  RAILWAY  RATES 

The  last  clause  of  this  sentence  is  significant  and  is  in 
line  with  its  employment  of  physical  valuation  as  meas- 
ure of  capital  value.  A  later  statement  to  the  effect  that 
in  "  dealing  with  this  feature  of  the  case  the  Board  will  be 
understood  as  referring  to  the  actual  money  that  was 
honestly  invested"  indicates,  however,  that  the  Board 
has  not  been  seized  as  yet  with  the  difficulties  of  the  prob- 
lem of  valuation.  The  general  intention  of  the  Board, 
apart  from  this  haziness  in  respect  to  the  actual  capital 
it  intends  to  protect,  is  manifest.  The  general  statement 
could  not  be  more  clearly  put  than  in  the  words  of  the 
opinion :  — 

It  is  of  great  importance  that  not  only  the  people  of  the  Yukon, 
but  for  that  matter  that  the  people  everj'where,  should  be  pro- 
tected from  extortionate  or  unreasonable  transportation  charges ; 
but  to  my  mind  it  is  of  equal  importance  that  the  capital  invested 
in  transportation  companies  should  be  permitted  to  earn  fair  and 
reasonable  dividends.  .  .  .  While  our  duty  to  interfere  and  re- 
duce rates  in  all  proper  cases  is  plain,  surely  it  is  equally  clear 
that  we  should  not  require  a  reduction  where  the  effect  would 
be  to  prevent  the  investment  earning  a  fair  return. 

It  might  be  argued  that  this  holding  arising  out  of  the 
conditions  surrounding  a  small  and  unimportant  line  con- 
structed under  great  engineering  difficulties  can  scarcely 
give  a  safe  lead  as  to  the  general  policy  of  the  Board.  But 
it  is  to  be  recalled  that  the  history  of  Canadian  railways 
shows  that  of  the  three  transcontinental  lines  which  are  a 
part  of  the  Canadian  situation,  only  one  has  got  beyond 
that  stage  of  development,  where  it  is  independent  of 
Government  assistance.  Moreover,  all  Canadian  roads, 
for  a  considerable  period,  will  have  to  find  much  capital, 
if  they  are  going  to  keep  pace  with  the  demands  for  trans- 
portation facilities  caused  by  the  development  of  Canada. 
Even  more  significant,  therefore,  is  the  Board's  attitude 
revealed  in  the  decision  handed  down  in  April,  1914,  in 


EXCESSIVE  RATES  105 

the  Western  Rates  Case/  where  this  phase  of  the  Cana- 
dian situation  becomes  of  great  importance.  In  this  case 
a  general  attack  was  made  upon  Western  Canadian  freight 
rate  levels  as  being  not  only  discriminatory  but  excessive. 
A  part  of  the  problem  was  to  determine  whether  one  of 
the  three  lines  affected  "should  be  taken  as  controlling 
the  rate  question"  for  "rates  based  upon  the  Canadian 
Pacific's  power  to  stand  reductions  would  inevitably  bank- 
rupt not  only  both  the  Canadian  Northern  and  the  Grand 
Trunk  Pacific,  but  for  the  future  preserve  the  western 
provinces  to  that  company  in  so  far  as  any  new  companies 
or  new  lines  were  concerned."  ^  The  opinion  continues:  — 

The  whole  question  is  or  should  be  what  rates  are  fair?  In 
considerhig  this  question  of  course,  surpluses  earned  by  past 
operations  may  be  evidence  to  the  facts  that  the  rates  under 
which  they  were  earned  were  exorbitant.  Any  industrial  enter- 
prise has  the  right  to  a  reasonable  surplus  over  and  above  its 
fixed  charges  and  dividends.  A  railway  is  also  entitled  to  a  rea- 
sonable surplus.  .  .  .  To  my  mind  it  is  quite  impossible  for  the 
Board  to  deal  with  rates  in  the  west  on  the  hypothesis  that  the 
Canadian  Pacific  is  the  only  railway  that  should  be  taken  into 
consideration. 

The  Board  rejected  the  contention  that  political  expedi- 
ency had  caused  the  authorization  of  certain  lines  and  that 
therefore  they  might  reasonably  be  ignored  in  ordering  a 
reduction  of  rates  upon  the  stronger  lines :  — 

Nothing  could  be  more  fatal  to  the  continued  usefulness  of 
this  tribiuial  than  for  it  to  attempt  to  consider  whether  or  not 
acts  of  parliament  were  passed  for  political  expediency,  even  if 
it  had,  instead  of  lacking  the  jurisdiction  to  do  so. 

Referring  specifically  to  the  Grand  Trunk  Pacific,  the 
Board  declared  that  the  very  worst  service  that  it  could 
do  would  be  to  order  such  a  scale  of  rates  as  would  effec- 

^  The  Board  of  Railway  Commissioners  for  Canada,  File  No.  18755, 
Judgment. 
«  Ibid.,  p.  34  ff. 


106  CANADIAN  RAILWAY  RATES 

tually  prevent  the  fruition  of  the  project  and  condemn  it 
to  insolvency  before  the  line  as  whole  was  actually  con- 
structed. "The  question  for  us  to  decide,"  it  said,  "is 
what  rates  are  fair  irrespective  of  how  much  any  company 
is  worth  or  is  not  worth,"  and  stated  that  "no  effect  is 
given  to  the  'lame  duck'  argument  that  we  have  heard  so 
much  about  during  the  inquiry,  on  the  one  hand,  nor  to 
shareholders'  reserves  on  the  other."  If  further  evidence 
is  required  that  the  Board  considers  a  fair  return  on  capi- 
tal invested,  the  true  test  of  reasonableness,  it  is  found  in 
the  following  statement:  — 

The  position  of  counsel  for  the  railways  reduced  to  its  logical 
conclusion,  is,  on  the  other  hand,  that  the  rates  must  be  based  on 
the  returns  of  the  weakest  line.  I  am  of  the  opinion  that  neither 
position  is  correct,  but  that  rates  should  be  considered  having 
regard  to  the  traffic  necessities  of  western  Canada  and  a  fair  re- 
turn to  the  carrier  apart  entirely  from  any  question  of  reserves 
of  the  company  on  the  one  hand  or  liabilities  of  the  company  on 
the  other.  ^ 

While  the  Board  did  not  make  a  physical  valuation  of 
the  three  lines  affected,  it  is  manifest  that  the  trend  of  the 
decisions  points  in  that  direction.  There  appears  to  be 
good  reason  why  the  Board  did  not  here  follow  its  prac- 
tice in  The  Dawson  Board  of  Trade  vs.  The  White  Pass 
&  Yukon  Railway  Case,  It  pointed  out  that  neither  the 
Grand  Trunk  Pacific  nor  the  Canadian  Northern  was  com- 
plete.^ Obviously  a  physical  valuation  of  a  line  under 
construction  would  not  afford  sufficient  data  of  value  to 
warrant  the  expense.  In  the  event  the  Board  ordered 
certain  reductions,  refusing  to  make  controlling  the  lack 
of  adequate  returns  to  the  Grand  Tnmk  Pacific  and  Cana- 
dian Northern  because  they  both  were  still  in  the  con- 
struction stage,  and,  on  the  other  hand,  refusing  to  take 

^  The  Board  of  Railway  Commissioners  for  Canada,  File  No.  18755, 
Judgment,  p.  34. 
«  Ibid.,  p.  9«. 


EXCESSIVE  RATES  107 

as  a  measure  the  earnings  of  the  Canadian  Pacific.  The 
decision  is,  therefore,  not  as  clear-cut  as  the  supporting 
opinion,  but  is  important,  as  it  indicates  the  ultimate  dis- 
position that  the  Board  will  likely  make  of  the  Western 
rates  situation  should  the  question  be  raised  again  when 
the  three  transcontinental  lines  are  all  actually  in  opera- 
tion. That  the  question  will  be  raised  again  seems  prob- 
able if  the  transcontinental  lines  continue  to  be  operated 
under  private  ownership. 

The  larger  implication  of  these  decisions  is  clearly  that 
the  Board  of  Railway  Commissioners  will  not  make  an 
order  that  will  imperil  capital  funds  actually  invested  in 
the  transportation  systems  of  Canada.  The  fact  that, 
when  such  an  order  was  inadvertently  launched  against 
the  White  Pass  &  Yukon  Railway,  it  was  promptly  re- 
scinded upon  the  discovery  of  what  its  effects  would  be, 
shows  the  temper  of  the  Board.  Indeed,  the  history  of  that 
case  gives  warrant  for  the  belief  that  if  the  order  which 
eventually  did  issue  in  the  Western  Rates  Case,  calling  for 
certain  reductions,  should  appear  from  its  results  to  be 
subversive  of  that  principle,  then  it  will  be  rescinded. 
The  supporting  opinion  would  justify  such  a  conclusion. 
Moreover,  the  statement  that  "the  Board  is  of  the  view 
that  the  serious  drop  in  railway  earnings  that  the  past  has 
shown  is  not  of  a  permanent  condition,"  ^  indicates  that 
the  order  has  been  based  on  the  idea  of  a  revival  of  pros- 
perity. This  is  a  predication  that  events  may  falsify. 
Should  railway  earnings  continue  to  shrink  logically  the 
Board  would  be  compelled  to  sanction  renewed  increases. 
But  we  may  naturally  expect  before  such  an  action  should 
take  place,  on  the  analogy  of  the  Board's  procedure  in  the 
earlier  case,  that  it  would  make  a  careful  appraisal  of  the 
physical  value  of  the  lines  in  question  as  the  basis  of  its 
determinations . 

*  The  Board  of  Railway  Commissioners  for  Canada,  File  No.  18755, 
Judgment,  p.  93. 


108  CANADIAN  RAILWAY  RATES 

Incidentally  it  may  be  noted  the  Board  does  not  pre- 
sume to  deal  with  the  wisdom  or  unwisdom  of  the  lines  in 
question  being  built.  Replying  to  urgent  appeals  to  the 
Board  that  Saskatchewan  and  Alberta  should  "not  be 
compelled  to  build  a  second  bridge  around  Lake  Superior 
and  pay  the  piper  and  be  bled  through  the  nose  for  its 
construction  and  operation,"  the  Chief  Commissioner  said 
that  they  "never  should  have  been  addressed  to  the 
Board."  The  Board  had  had  nothing  to  do  with  building 
either  the  National  Transcontinental  or  the  Canadian 
Northern  around  Lake  Superior  or  anywhere  else.  The 
Board,  instead  of  sitting  in  review  on  acts  of  Parliament, 
was  governed  by  them.  Sound  as  this  view  may  be,  prob- 
lems appear.  A  road  once  laid  out  and  built  on  other  lines 
than  those  of  economy  and  efficiency  in  the  public  interest 
cannot  possibly  serve  the  country  and  maintain  its  sol- 
vency on  rates  which  represent  a  fair  return  on  the  ser- 
vice rendered.  This  is  the  condition  from  which  the  West 
suffers.  If  a  fair  retvu-n,  based  on  a  physical  valuation,  be 
accepted  as  the  basis  of  transportation  rates  unnecessary 
lines  once  built  become  a  burden  upon  the  country  at  large. 
Under  the  rulings  of  the  Board  there  is  no  relief.  Relief 
can  only  come  from  Parliament,  the  body  primarily  respon- 
sible for  the  existence  of  the  roads. 

The  importance  of  the  Western  Rates  Case  cannot  be 
denied.  Not  only  was  it  before  the  Board  for  a  consider- 
able period  of  time,  but  it  touched  a  multitude  of  interests 
and  engaged  the  attention  of  an  array  of  counsel  not  often 
surpassed.  A  score  of  barristers  of  the  first  rank  repre- 
sented the  Dominion  Government,  the  Provinces  of  Al- 
berta, Saskatchewan  and  British  Columbia,  the  cities  of 
Winnipeg  and  St.  Boniface,  and  the  railway  companies. 
Among  other  associations  and  boards  of  trade  that  ap- 
peared before  the  Board  of  Commissioners  or  submitted 
representations,  were  the  United  Farmers  of  Alberta,  the 
Canadian  Manufacturers'  Association,  and  the  boards  of 


EXCESSIVE  RATES  109 

trade  of  sixteen  cities.  The  decision  was  written  by  the 
Chief  Commissioner  and  unanimously  concmred  in  by  the 
other  four  Commissioners  who  sat  on  the  case.  In  view  of 
these  facts  we  may  safely  conclude  that  the  judgment 
represents  the  considered  and  mature  policy  of  the  Board. 
While  the  general  principle  of  fair  return  upon  capital 
has  been  affirmed  and  color  has  been  given  to  the  conclu- 
sion that  the  basis  of  capitalization  would  be  the  physical 
value  of  the  road  in  question,  some  collateral  problems 
attach  to  the  latter  feature  of  the  holding.  It  is  evident 
that  if  the  Board  in  any  case  felt  forced  to  make  a  physi- 
cal valuation  it  might  arrive  at  an  estimate  of  value  far 
below  or  above  that  represented  by  the  capital  invested  in 
the  stocks  and  bonds.  The  estimate  would  carry  with  it  a 
considerable  weight  of  presumption  as  to  its  fairness.  The 
natural  supposition  would  be  that  the  Board,  having  tiuned 
to  physical  valuation  as  its  measure  of  capital  actually  in- 
vested, would  order  rates  in  accordance  therewith  even  if 
it  meant  a  drastic  reduction  in  the  returns  to  railway  se- 
curities. Natiu-ally  the  Board  did  not  intimate  what  it 
would  do  under  these  circumstances.  In  the  White  Pass 
&  Yukon  Railway  Case  such  a  physical  valuation  was 
made,  but  it  was  not  used,  as  revenues  had  declined  below 
a  fair  return  on  that  basis.  ^  In  the  Western  Rates  Case  the 
issue  was  not  considered.  The  complainants  made  a  statis- 
tical presentation  in  connection  with  the  Canadian  Pacific, 
but  failed  to  include  either  the  Canadian  Northern  or  the 
Grand  Trunk  Pacific.  This  only  dealt  with  the  finances  of 
the  company.  The  Chief  Commissioner  warned  them, 
"with  reference  to  the  inquiry  into  the  financial  standing 
of  the  companies,  it  seems  to  me  that  if  one  is  investigated 
that  they  should  all  be  investigated."  In  both  cases,  how- 
ever, the  Board  has  suggested  that  if  there  were  evidence 
of  stock-watering,  securities  would  be  scaled  down.  In 
the  earlier  instance  it  said,  "if  it  were  apparent  that  the 

»  7/222. 


110  CANADIAN  RAILWAY  RATES 

stock  had  been  improperly  inflated  there  would  be  no 
difficulty  in  protecting  the  stockholders  to  the  extent  of 
the  actual  investment,"  while  in  the  Western  Rates  Case 
it  declared  that  it  "would  be  entirely  unfair  to  the  shipper 
if  he  were  compelled  to  pay  rates  which  were  based  either 
on  the  amount  of  capital  stock,  the  bond  issue  or  other 
liabihties  of  the  company,  a  portion  of  which  on  the  one 
hand  may  never  have  been  applied  in  supplying  the  trans- 
portation system  in  respect  of  which  the  rate  was  made, 
or  which  on  the  other  hand,  may  represent  in  part  merely 
a  fictitious  value." 

The  trend  of  these  remarks  is  quite  unequivocal  and  in 
the  direction  of  physical  valuation.  The  Board,  however, 
did  not  say  that  a  hiatus  between  outstanding  securities 
at  par  value  and  the  results  of  a  physical  valuation  would 
create  a  presumption  of  fictitious  values.  This  particular 
bridge  was  not  crossed.  Indeed,  coupled  with  these  state- 
ments regarding  physical  valuation  there  are  others  that 
seemed  to  indicate  that  while  the  Board  spoke  of  physical 
valuation  it  contemplated  producing  results  that  hinged 
on  a  recognition  to  some  degree  of  commercial  valuation. 
In  the  White  Pass  &  Yukon  Railway  Case  the  Board  re- 
ferred to  the  danger  of  "  shaking  the  faith  of  the  investing 
public  in  Canadian  securities,"  and  emphasized  the  fact 
that  nothing  must  be  done  that  would  tend  to  check  the 
inflow  of  foreign  capital:  — 

Railway  construction  in  Canada  depends  entirely  upon  out- 
side capital;  thousands  of  millions  must  be  borrowed  within  the 
next  generation  or  two.  We  have  in  Canada  less  than  30,000 
miles  of  raUway  as  against  more  than  250,000  mUes  in  the 
United  States.  Within  fifty  years  Canada  will  require  a  greater 
railway  mileage  than  now  exists  in  the  United  States;  the  money 
for  the  construction  of  this,  must  for  many  years  at  least,  largely 
come  from  abroad,  and  how  long  would  these  investments  con- 
tinue if  it  were  known  that  their  earning  power  might  at  any 
moment  be  terminated  by  the  intervention  of  this  Board?  ^ 

»  7/222. 


EXCESSIVE  RATES  111 

As  a  matter  of  fact  the  condition  of  the  White  Pass  & 
Yukon  Railway  presented  a  better  opportunity  for  physi- 
cal valuation  than  the  transcontinental  situation  in- 
volved in  the  Western  Rates  Case.  The  White  Pass  & 
Yukon  Railway  is  undisturbed  by  rivals  in  handling  traf- 
fic. If,  however,  two  more  railways  were  built  paralleling 
the  White  Pass  &  Yukon  Railway,  and  it  were  decided 
that  rates  must  be  raised  to  such  a  height  that  all  three 
might  receive  a  fair  return  on  the  actual  capital  invested, 
as  indicated  by  a  physical  valuation,  then  the  case  would 
be  similar.  The  Board  has  indicated  that  it  is  not  pre- 
pared to  protect  rates  based  on  "merely  a  fictitious  value." 
The  crux  of  the  problem  is,  shall  rates  be  paid  on  capi- 
tal that  has  been  actually  spent,  though  unwisely  or  un- 
necessarily in  the  duplication  of  lines  or  branches?  Must 
Canada  pay  dividends  on  foreign  capital  invested  in  it 
regardless  of  the  wisdom  or  economy  manifested  in  the 
investment  lest  the  flow  of  foreign  capital  cease?  The 
vital  necessity  of  a  service  surely  cannot  justify,  even  in 
the  broad  sense,  its  wasteful  performance. 

The  almost  hysterical  solicitude  expressed  for  the  pro- 
tection of  dividends,  that  the  opinion  in  the  White  Pass 
&  Yukon  case  revealed,  certainly  indicates  an  attitude 
not  favorable  to  the  solid,  unflinching  application  of  physi- 
cal value  as  the  basis  of  presumed  fair  capitalization. 
This  conclusion  is  confirmed  by  the  practice  and  opinion 
of  the  Board  in  a  late  case  where  it  has  again  wrestled 
with  fundamental  considerations.  A  judgment  was  handed 
down  in  1916  upon  the  application  of  the  telegraph  compa- 
nies for  approval  of  their  tolls  within  the  territory  west 
of  Sudbury,  Ontario,  and  for  transcontinental  business.^ 
The  question  in  one  form  or  another  was  before  the  Board 
for  four  years,  but  decision  was  delayed  on  account  of  the 
war.  While  not  dealing  with  freight  rates  the  problem,  as 
was  pointed  out  in  the  judgment,  is  essentially  similar:  — 
»  VI  J.O.R.R.  29. 


112  CANADIAN  RAILWAY  RATES 

The  situation  which  is  presented  is  substantially  on  all  fours 
with  that  dealt  with  in  the  Western  Rates  investigation.  There, 
the  Board  had  to  deal  with  an  old  established  railway,  the  Cana- 
dian Pacific,  doing  business  on  a  large  scale;  with  a  newer  rail- 
way, the  Canadian  Northern,  which  was  yet  in  the  construction 
period  and  whose  traffic  was  in  process  of  development;  and  with 
the  Grand  Trunk  Pacific,  a  road  which  was  still  in  the  construc- 
tion period  and  whose  traffic  was  less  developed  than  that  of  the 
Canadian  Northern.  In  the  present  application,  the  Canadian 
Pacific  has  a  developed  business  and  a  through  system.  The 
Canadian  Northern  has,  since  the  hearing,  been  linked  up  with 
the  Great  North  Western  through  an  operating  arrangement. 
The  Grand  Trunk  Pacific  Telegraph  Company  is  in  a  develop- 
ment situation  and  has  but  recently  put  in  tariffs  covering  the 
territory  from  points  adjacent  to  the  city  of  Quebec  to  Prince 
Rupert.^ 

Proceeding  upon  the  basis  that  "all  telegraph  business 
must  give  its  proper  contribution  to  the  maintenance, 
depreciation  and  interest  on  the  necessary  plant  invest- 
ment," the  Board  reviewed  carefully  valuations  made  of 
their  lines  by  the  companies  involved.  A  check  was  made 
of  the  figures  of  the  Canadian  Pacific  Railway  by  the 
Board's  electrical  engineer,  who  based  his  calculations 
upon  a  section  of  line  between  Vaudreuil  and  Ottawa. 
Comparisons  were  also  made  with  the  cost  of  the  Govern- 
ment telegraph  system  in  Nova  Scotia.  Checking  these 
figures  out  as  against  the  total  valuation  given  by  the 
Canadian  Pacific  Railway  Company,  the  Board  reckoned 
that  it  would  mean  an  approximate  reduction  of  seven 
per  cent  in  the  case  of  that  company.  In  making  the  com- 
putation cost  of  reproduction  was  employed  rather  than 
original  cost.  The  Canadian  Northern  stated  it  was  un- 
able to  give  information  as  to  what  the  original  telegraph 
line  cost  and  based  its  estimate  upon  the  cost  of  renewal 
work  done  by  the  railway  company.  With  respect  to  the 
value  of  the  Great  North  Western  system  the  Board  re- 
marked that  lapse  of  years  since  the  initial  construction 
1  VI  J.O.R.R.  29,  p.  50. 


EXCESSIVE  RATES  113 

appeared  to  render  it  impossible  to  get  at  original  state- 
ments of  cost. 

With  this  data  before  it,  the  Board  ruled  that  "cost  of 
reproduction  of  a  system  whose  traffic  has  reached  a  high 
point  of  development  is  no  more  necessarily  conclusive  as 
to  reasonableness  than  would  be  cost  of  reproduction  of 
the  system  which  is  least  favorably  situated  in  points  of 
traffic  so  far  developed,  and  which  in  terms  of  the  Gov- 
ernment returns  is  operating  at  a  deficit."  ^ 

Earnings  were  also  considered  and  it  was  similarly  held 
that  the  matter  could  not  be  looked  at  "either  from  the 
standpoint  of  the  most  favorably  situated  company  in 
point  of  earnings  or  from  the  standpoint  of  the  least  fav- 
orably situated  company.  .  .  .  What  is  necessary  to  do 
then  is  to  arrive  at  a  reasonable  adjustment  of  rates  hav- 
ing regard  to  the  traffic  offering  and  probable  expansion 
thereof,  as  well  as  the  question  of  a  fair  return."  The  final 
result  of  the  Board's  investigation  was  the  promulgation 
of  an  amended  tariff  of  maximum  tolls  based  on  the  trans- 
continental toll  of  $1.00,  which  was  sustained  by  the  Board 
as  a  reasonable  rate.  The  local  zone  rate  of  25  cents  was 
not  disturbed,  not  being  really  in  question,  though  the 
Great  North  Western  submitted  some  evidence  bearing  on 
the  contention  that  the  rate  was  unreasonably  low.  The 
effect  of  the  judgment  was  to  reduce  the  rates  of  the  zones 
to  a  parity  so  that  any  question  of  discrimination  between 
zone  and  zone  would  disappear. 

While  the  result  of  the  investigation  tends  to  confirm 
the  conclusion  already  set  forth  that  the  Board  will  pro- 
tect, in  so  far  as  rates  are  in  question  fair  capital  invest- 
ment, the  decision  illustrates  an  attempt  to  secure  a  defi- 
nite valuation  of  the  telegraph  lines  affected  on  the  basis 
of  reproduction  cost.  It  has  thus  gone  a  step  farther  in 
dealing  with  the  problem  of  determining  what  is  fair 
value.  Of  course,  in  this  instance,  the  Board  could  hardly 
1  VI  J.O.R.R.  29,  p.  60. 


114  CANADIAN  RAILWAY  RATES 

do  otherwise;  the  telegraph  companies  are  very  much 
tangled  up  with  the  railway  lines.  The  Canadian  North- 
ern, for  example,  stated  that  "the  stock  and  bond  issue  did 
not  in  any  way  represent  the  actual  cost  of  the  line;  the 
stock  and  bond  issue  simply  amounted  to  an  arbitrary  ar- 
rangement between  the  railway,  the  telegraph  company, 
and  the  contractors."  ^  Moreover,  at  first  the  telegraph 
lines  were  used  for  railway  service  and  "the  commer- 
cial use  is,  so  to  speak,  a  by-product."  Only  as  busi- 
ness develops  are  wires  put  in  for  commercial  services. 
The  problem  thus  arises  of  computing  the  cost  of  repro- 
duction of  the  whole  service  and  then  of  apportionilig  it 
on  the  basis  of  the  percentage  of  mileage  of  commercial 
telegraph  wires  to  the  whole.  Equally  significant  is  its 
insistence  upon  fair  rates  being  arrived  at  by  an  "adjust- 
ment" between  "traffic  offering  and  probable  expansion 
thereof"  and  "fair  return."  Thus,  in  this  instance,  as  in 
previous  instances,  while  the  Board  has  employed  valua- 
tion data  as  one  of  the  bases  of  judgment,  it  has  also  been 
affected,  when  it  has  come  to  decision,  by  commercial 
considerations.  The  same  attitude  has  recurred  in  less 
extreme  form  in  other  cases.  ^  We  may  therefore  conclude 
that  where  an  issue  between  physical  and  commercial 
data  as  the  basis  of  valuation  arises,  it  will  be  settled  in 
the  "British  spirit  of  non-logical  compromise"  rather 
than  by  the  triumph  of  one  or  the  other  method. 

So  far  we  have  discussed  the  merits  of  physical  valua- 
tion on  the  assumption  that  if  it  were  applied  the  result 
would  be  that  it  would  make  for  a  lower  total  valuation 
than  outstanding  securities.  This  does  not  necessarily 
follow.  There  is  another  possibility.  In  the  case  of  the 
Canadian  Pacific  Railway  it  is  quite  possible  that  the 

1  VI  J.O.R.R.  29,  p.  46. 

2  Cp.  The  British  Columbia  News  Co.,  Limited:  "The  right  to  a  rea- 
sonable profit  to  the  transportation  agency  as  well  must  be  recognized." 

7/285. 


EXCESSIVE  RATES  115 

valuation  would  reveal  assets  in  excess  of  its  outstanding 
securities.  The  Board  has  said  that :  — 

"Should  a  company  not  distribute  profits  earned  under  legal 
tariffs,  those  profits,  nevertheless,  belong  to  the  shareholders,  and 
it  would  be  equally  unfair  if  such  undisturbed  profits  were  taken 
as  a  return  of  capital  to  the  shareholders  for  the  purpose  of  jus- 
tifying a  rate  otherwise  indefensible."  ^ 

The  danger  in  respect  to  the  Canadian  Pacific  Railway- 
is  this:  It  will  be  remembered  that  when  the  Canadian 
Pacific  Railway  Company  received  its  charter  a  clause 
provided  that  when  dividends  exceeded  ten  per  cent  per 
annum  reduction  in  rates  must  take  place.  Such  a  clause 
put  a  premium  upon  the  investment  of  earnings  in  the 
physical  assets  of  the  company.  There  is  good  reason  to 
believe  that  the  Canadian  Pacific  has  followed  this  plan, 
and  when  larger  dividends  than  ten  per  cent  might  have 
been  paid,  rather  than  to  incur  thereby  rate  reductions, 
it  has  expended  the  funds  nominally  in  replacements  and 
betterments.  Hence,  physical  valuation  applied  to  the 
Canadian  Pacific  might  easily  validate  any  secret  reserve 
stored  in  its  assets,  and  thus  earnings  would  be  capitalized 
with  corresponding  disadvantage  to  the  shipper  and  public 
generally.  Indirectly  such  a  course  would  set  the  seal  of 
approval  upon  a  policy  that  in  effect  defeated  the  only 
safeguard  to  the  public  contained  in  the  charter  granted 
to  the  builders  of  the  Pacific  Railway. 

Moreover,  there  is  the  possibility  that  the  two  methods 
might  be  played  off  against  each  other;  that  is,  the  appli- 
cation of  the  method  of  physical  valuation  might  be  em- 
ployed where  lines  have  been  unwisely  or  uneconomically 
located,  and  commercial  valuation  might  be  allowed  to 
control  where  these  circumstances  are  absent.  It  rests 
with  the  Board  to  prevent  such  an  outcome  by  the  exer- 

*  File  No.  18755,  Judgment,  p.  35.  Cp.  "As  a  matter  of  public  policy 
railway  rates  should  be  rates  of  such  a  character  as  to  attract  investment 
and  to  render  railway  securities  marketable."  Ibid.,  p.  27. 


116  CANADIAN  RAILWAY  RATES 

cise  of  vigilance  and  good  judgment.  There  are  indica- 
tions that  it  is  alert  to  this  danger.  In  the  Eastern  Rates 
Case  ^  objection  was  made  to  the  Grand  Trunk's  presen- 
tation of  capital  account  on  the  ground  that  it  included 
deductions  made  because  of  its  Chicago  connection,  the 
Chicago  &  Grand  Trunk  Railway  Company.  It  was  con- 
tended that  so  far  as  Canadian  rates  were  concerned  they 
should  be  considered  on  their  own  basis  apart  from  losses 
of  the  part  of  the  system  in  the  United  States.  With  re- 
spect to  its  Chicago  connection,  the  Grand  Trunk  sub- 
mitted that  it  had  acquired  the  road  when  the  latter  had 
been  sold  under  foreclosure  and  that  it  had  secured  au- 
thorization from  the  Parliament  of  Canada.  Strictly  con- 
struing the  grant  of  power  the  Board  declared :  — 

"  Any  question  which  might  arise  as  to  the  power  of  the  com- 
pany to  make  such  investment  as  far  as  Canadian  authority  is 
concerned,  is  set  at  rest  by  the  Government's  action,  confirmed 
as  it  is  by  ParHament.  The  matter,  however,  is  not  carried  fur- 
ther. Obligation  to  construct  or  purchase,  statutory  or  other- 
wise, there  is  none.  Certainly  the  result  of  the  legislation  and  the 
agreement  is  not  to  render  the  Canadian  shipper  subject  to  the 
burden  of  making  good  losses  in  United  States  territory,  or  to 
justify  higher  rates  in  Canada  than  those  which  should  obtain 
had  the  company's  operations  been  confined  to  Canada."  ^ 

To  the  argument  that  while  the  Grand  Trunk's  lines  in 
the  United  States  did  show  unsatisfactory  results,  they 
nevertheless  brought  considerable  benefit  to  the  parent 
line,  the  Board  replied  that  "the  manifest  qualification 
must,  however,  be  made  and  the  fact  emphasized  that  while 
the  Grand  Trunk  proper  does  benefit  by  the  business  it 
obtains  from  its  American  subsidiary  lines,  that  these  lines 
in  turn  benefit  from  the  connection  with  the  parent  com- 
pany." While  it  may  be  allowed  that  rates  on  the  main 
line  should  not  be  levied  at  a  high  level  simply  to  secm-e 
funds  to  acquire  or  to  bolster  up  weak  subsidiary  lines,  it 
»  VI  J.O.R.R.  148  ff.  2  ii)id,^  p.  150. 


EXCESSIVE  RATES  117 

must  be  recognized  that  the  qualification  set  forth  by  the 
Board  to  the  railway's  contention  is  scarcely  exact  enough. 
While  there  undoubtedly  is  material  and  mutual  benefits 
derived  by  the  connection  of  parent  and  branch  line  it 
does  not  of  necessity  follow  there  is  an  equivalency  of  bene- 
fit, and  this  is  the  essence,  we  take  it,  of  the  Grand  Trunk's 
contention.  When  there  is  a  close  relationship,  such  as 
exists  between  the  Grand  Trunk  and  its  Chicago  connec- 
tion, to  endeavor  to  allow  anything  to  hinge  upon  the 
fact  that  the  branch  feeder  is  in  the  United  States  is  of 
dubious  value.  There  is  some  weight  in  the  Grand  Trunk's 
contention  that  "the  Grand  Trunk  proper  would  have 
been  in  a  worse  position  but  for  these  very  feeders."  The 
proper  and  sound  position  is,  indeed,  indicated  by  the 
Board,  but  rather  as  an  afterthought,  —  rates  should  not 
be  higher  to  the  Canadian  shipper,  because  of  American 
connections,  "than  those  which  should  obtain  had  the 
company's  operations  been  confined  to  Canada." 

In  the  Eastern  Rates  Case  a  second  objection  was  made 
to  the  Grand  Trunk's  statement  on  the  ground  that  the 
same  capital  covered  advances  to,  or  investments  in,  the 
Grand  Trunk  Pacific.  Examination  disclosed  the  fact  that 
these  advances  had  not  been  made  out  of  earnings,  but 
from  capital  account.  The  balance  due  to  the  Grand  Trunk 
for  the  Grand  Trunk  Pacific  undertaking  December  31, 
1915,  amounted  to  $27,694,999.  The  Board's  ruHng  here 
is  clear,  incisive,  and  wholly  satisfactory:  "The  Board 
can,  of  course,  give  no  consideration  in  the  present  case 
to  these  outside  investments  as  having  any  bearing  on  the 
question  of  what  freight  rates  ought  to  be."  The  invest- 
ment in  the  Pacific  line  is  "an  investment  which  freight 
rates  in  Eastern  Canada  should  not  be  called  upon  to  sup- 
port." It  is  obvious  that  the  extending  of  support  to  the 
Grand  Trunk  Pacific  differs  distinctly  from  the  Grand 
Trunk  sustaining  its  Chicago  connection.  The  Grand 
Trunk  Pacific  is  a  new  line  with  no  direct  connection  with 


118  CANADIAN  RAILWAY  RATES 

the  Grand  Trunk  Railway  and  with  no  very  direct  influ- 
ence upon  its  Eastern  traflBc.  Eastern  shippers  should  not 
be  penalized  to  enable  the  Grand  Trunk  to  build  or  develop 
this  new  Western  line.  The  net  result  of  the  Board's  rul- 
ings on  these  aspects  of  the  Eastern  Rates  Case  is  to  make 
it  evident  that  the  Board  will  not  allow  capitalization  ac- 
counts to  be  manipulated  to  impose  rate  burdens  beyond 
fair  return  on  capital  actually  invested  in  the  line  involved. 
The  method  followed  in  this  case  is  instructive.  In  pass- 
ing upon  the  level  of  Eastern  freight  rates  the  Board  ac- 
cepted for  primary  consideration  the  Grand  Trunk's  earn- 
ings as  a  basis  of  rates.  The  returns  to  the  Government 
showed  capital  charges  amounting  to  $131,395  per  mile, 
the  Board  declined  to  make  this  the  basis  of  rates,  point- 
ing out  after  investigation,  that  it  could  not  be  sustained 
by  the  standard  of  any  other  line  either  built  or  projected. 
The  other  standards  compared  were  the  cost  figures  per 
mile  of  the  National  Transcontinental,  the  Intercolonial, 
the  Glen  Tay-Agincourt  cut-off  of  the  Canadian  Pacific, 
the  Canadian  Pacific's  Sudbury-Toronto  line,  and  the 
Ontario-Hydro-Electric  Commission's  estimate  of  cost 
per  mile  of  a  line  between  Toronto  and  London.  The  Board 
then  calculated  the  net  earnings  that  would  be  necessary 
to  yield  a  fair  return  on  these  standards  of  "six  per  cent 
on  its  capital  to  provide  four  per  cent  for  interest  charges 
and  two  per  cent  to  enable  necessary  financing  and  ex- 
penditures to  be  made."  ^  The  result  showed  that  the 
Grand  Trunk's  best  earnings  fell  considerably  short  of  the 
earnings  required  on  any  of  the  other  standards.  The  gen- 
eral increase  asked  for  was  then  granted.  The  case  stops 
short  of  being  a  complete  application  of  the  principle  of 
fair  return  based  on  a  cost  valuation,  because  the  Board 
reckoned  that  on  any  standard  it  had  before  it,  the  best 
earnings  of  the  Grand  Trunk  did  not  come  up  to  that 
level.  The  explanation  is  that  the  Eastern  Rates  Cases 
»  VI  J.O.R.R.,  p.  153  ff. 


EXCESSIVE  RATES  119 

followed  the  increase  in  rates  granted  by  the  Interstate 
Commerce  Commission  in  official  classification  territory, 
and  Canadian  roads  could  not  apply  to  raise  their  rates 
to  any  extent  beyond  the  American  level,  if  they  wished  to 
hold  certain  traffic. 

In  other  instances  the  Board  has  not  felt  it  incumbent 
to  carry  the  investigation  and  discussion  of  valuation  back 
to  fundamental  considerations.  Principles  are  not  stated 
as  uncompromisingly  and  as  definitely  as  in  the  cases  se- 
lected for  examination.  The  same  ideas  essentially,  how- 
ever, appear  to  be  assumed  as  underlying  postulata.  The 
same  desire  not  unduly  to  curtail  railway  earnings  is  dis- 
closed. The  1912  investigation  into  express  rates  is  a  case 
in  point,  it  being  remembered  that  the  express  business  of 
Canada  is  carried  on  typically  by  the  railroads  through  the 
agency  of  subsidiary  companies.  In  the  autumn  of  1912 
the  Board  on  its  own  motion  initiated  an  investigation  into 
express  rates  in  Eastern  and  Western  Canada,^  and  a 
judgment  followed  in  April,  1913,  a  year,  it  will  be  noted, 
before  the  Western  Rates  Case.  The  effect  of  the  Board's 
previous  judgment  upon  express  rates  was  one  of  the  ques- 
tions at  issue.  The  president  of  the  Canadian  Express 
Company,  a  company  whose  business  lay  practically  all 
in  the  East,  had  asserted  that  reductions  in  rates  either 
directly  or  indirectly  made  by  the  Board  were  making  the 
continued  financial  success  of  the  company  more  or  less 
doubtful.  Dealing  with  the  admitted  fact  that  the  com- 
pany's profits  for  the  year  ending  June  30,  1912,  had  fallen 
much  below  former  standards.  Chief  Commissioner  Dray- 
ton was  at  pains  to  show  that  this  fall  in  profits  was  mostly 
due  to  increased  cost  of  service  rather  than  to  reductions 
ordered  by  the  Board.  He  pointed  out  that  in  the  pre- 
vious inquiry  the  Board  had  accepted  as  reasonable  with 
some  exceptions,  the  predominant  scale  of  charges  in  use 
in  eastern  Canada.  Continuing  he  said :  — 

I  9/309. 


120  CANADIAN  RAILWAY  RATES 

The  net  results  to  the  Canadian  Express  Company,  that  I  take 
as  a  fair  illustration  of  express  conditions  in  eastern  Canada, 
show  that  from  a  net  return  on  the  gross  revenue  of  13.1  per 
cent,  as  ascertained  by  the  Board  in  its  former  investigation  the 
net  return  on  a  much  larger  turnover  to-day  has  dropped  to  6.09 
per  cent.  I  do  not  say  that  this  much  smaller  figure  to-day  is  to 
be  looked  upon  or  adopted  by  the  Board  as  only  a  reasonable 
compensation  but  I  hesitate  to  make  any  drastic  order  applying 
to  eastern  Canada  in  the  face  of  this  increasing  ratio  of  expense, 
and  the  proposed  introduction  of  the  parcels  post. 

Accordingly  no  general  reductions  were  made  in  East- 
ern Canadian  express  rates.  In  the  earlier  inquiry  the  com- 
panies had  maintained  that  the  cost  of  conducting  busi- 
ness in  the  West  was  greater  and  the  density  of  traffic 
less  than  in  the  East.  This  contention  was  given  consid- 
erable weight,  so  that  while  the  basis  of  the  scale  for 
Eastern  Canada  was  not  to  exceed  $3  per  hundred  pounds 
for  900-1000  mile  group,  in  the  West  the  rating  for  the 
prairie  section  was  placed  at  $5  and  for  the  mountain 
section  $6.  The  1912  investigation  took  the  returns  of  the 
Canadian  Northern  Express  Company,  which  carries  on 
its  business  almost  entirely  in  the  Prairie  Provinces,  as 
typical  for  that  section  of  the  country.  This  company's 
business  for  the  year  ending  June  30,  1912,  showed  a  re- 
turn on  its  operations  of  24.745  per  cent.  The  Board  held 
that  the  actual  results  of  operation  of  the  earlier  order 
seemed  to  show  that  imdue  weight  had  been  given  in  the 
previous  judgment  to  the  contention  that  the  cost  of  ser- 
vice was  greater  in  the  West  and  ordered  a  reduction  in 
rates  in  the  West  of  twenty  per  cent.  Thus,  in  this  in- 
stance, where  the  express  companies  were  shown  to  be  in 
the  enjoyment  of  handsome  profits,  the  Board  reduced 
rates,  but  where  profits  were  falling,  even  though  they  had 
not  fallen  below  six  per  cent  the  Board  refused  to  order 
reductions  lest  that  decline  should  continue  to  be  accel- 
erated to  an  injurious  degree. 

In  this  investigation  and  ruling  the  computation  of  the 


EXCESSIVE  RATES  121 

ratio  of  net  earnings  to  gross  revenue  was  the  decisive  fac- 
tor in  determining  fair  returns.  The  propriety  of  valua- 
tions was  not  considered.  Chief  Commissioner  Drayton 
expressing  the  opinion  that  — 

The  express  business  is  a  matter  of  railway  operation  in  this 
country,  and  the  capitahzations  and  bonded  indebtedness  of  the 
different  erpress  companies  have  been  created  under  such  cir- 
cumstances as  to  require  no  consideration  in  striking  a  rate. 

The  general  tenor  of  the  decision  is  clear.  The  Board 
will  protect  fair  investment,  but  will  ignore  outstanding 
securities  in  determining  capital  value  where  there  is  evi- 
dence that  they  have  been  issued  arbitrarily  or  without 
due  regard  to  the  magnitude  of  the  enterprise.  Similarly 
the  Board  refused  to  permit  the  Hull  Electric  Railway  to 
increase  its  rates  in  view  of  large  net  earnings  in  propor- 
tion to  gross  earnings.^  An  aflarmative  holding  occurs  in 
the  case  of  the  Dominion  Sugar  Company  vs.  Pere  Mar- 
quette Railway,  et  al.^  that  "the  Board's  endeavor,  while 
assisting  traflBc  as  much  as  possible  and  equalizing  rates, 
should  also  be  directed  to  maintaining  railway  revenues  in 
Eastern  Canada,  where,  as  matters  stand  to-day,  they  are 
relatively  lower  than  in  the  West."  So  in  the  case  of  the 
Western  Ontario  Municipalities  vs.  Grand  Trunk  Railway, 
et  al.,  the  Board  refused  to  order  a  low  rate  on  gravel  for 
road  construction,  holding  that "  in  every  case  traffic  moved 
must  be  of  sufficient  volume  and  the  hauls  of  sufficient 
length  to  ensure  proper  remuneration."  ^  In  Brown  vs. 
Lake  St.  John  Railway  the  company  had  canceled  an 
established  commutation  rate  on  tickets.  The  Board  re- 
fused to  interfere,  observing,  "the  statement  of  the  rail- 
way company's  financial  position  shows  that  it  has  been 
operated  at  a  loss  for  many  years.  The  contention  is  that 

1  10/339. 

2  17  C.R.C.  240.  (C.R.C.,  i.e.,  MacMurchy  and  Dennison  or  Mac- 
Murchy  and  Spence,  Canadian  Railway  Cases.) 

3  18  C.R.C.  329. 


122  CANADIAN  RAILWAY  RATES 

the  ten  trip  tickets  at  the  rate  at  which  they  have  been 
sold  are  unremunerative."  ^  From  this  position  it  is  not  a 
far  step  to  permitting  the  Edmonton,  Dunvegan  &  British 
Columbia  Railway  ^  to  apply  the  mountain  rate  in  prairie 
territory  in  contravention  of  the  Western  Rates  Case  rul- 
ing:— 

The  only  argument  for  taking  the  mountain  scale  as  appli- 
cable to  the  railway  in  question  would  seem  that  it  needs  the 
money,  and  that  the  mountain  scale  is  higher  than  the  prairie 
scale.  The  application  of  the  mountain  scale  as  such  would  not, 
of  course,  be  justified. 

The  road  pleaded  that  it  wished  to  secure  sufficient 
revenue  at  least  to  pay  fixed  charges.  The  Board  granted 
the  request  temporarily,  thus  permitting  a  deviation  from 
their  earlier  decision  on  the  ground  of  the  financial  in- 
stability of  the  petitioning  line.  Thus,  while  in  all  these 
eases  there  has  been  a  careful  regard  for  due  return  upon 
actual  investment,  the  Board  has  not  faced  the  more  diffi- 
cult problems  of  accounting  and  valuation.  Except  in  the 
Eastern  Rates  Case  it  has  not  closely  scrutinized  the  ac- 
tuality of  investment.  The  issues  have  been  disposed  of 
by  the  shortest  route,  without  recourse  to  much  investi- 
gation or  consideration  of  ultimate  principles.  In  so  far 
as  the  use  of  ratios  of  net  to  gross  earnings  has  been  relied 
upon,  it  would  appear  these  ratios  on  the  whole  have  been 
used  uncritically.  Nor  have  the  implications  of  the  method 
been  developed.  The  accounting  problems  in  connection 
with  the  determination  of  net  earnings  have  not  been  fully 
resolved.  The  principle  of  fair  return  has  been  confirmed, 
but  has  not  been  worked  out  with  clearness  or  thorough- 
ness.^ 

1  18  C.R.C.  342.  *  10/341. 

'  Cp.  "  In  the  Eastern  Rates  Case,  the  general  rate  structure  was  dealt 
with,  and  the  whole  question  of  railway  finances  and  requirements  of 
the  different  lines  were  given  most  careful  consideration  by  the  Board." 
VI  J.O.R.R.  380. 


EXCESSIVE  RATES  183 

§  S.  In  the  leading  cases  under  consideration  the  attack 
was  upon  general  levels  of  rates.  In  The  Dawson  Board  of 
Trade  vs.  The  White  Pass  &  Yukon  Railway  Case,  as  the 
whole  traffic  of  the  road  was  under  review  it  was  com- 
paratively easy  to  arrive  at  the  probable  effect  of  a  reduc- 
tion in  rates.  To  a  lesser  degree  this  was  true  also  in  the 
Western  and  Eastern  Rates  Cases.  While  the  scope  was 
not  so  extensive  large  traffic  areas  were  under  considera- 
tion and  it  was  possible  with  some  success  to  attempt  to 
segregate  operating  costs,  and  to  compute  the  net  effects 
of  reductions  or  increases  on  traffic.  It  is  manifestly  quite 
a  different  proposition  to  determine  the  result  of  reducing 
the  rate  on  a  single  article  on  the  general  revenues  of  the 
company.  Yet  the  characteristic  case  where  excessive 
tolls  have  been  alleged  involves  this  difficulty,  for  a  com- 
plaint of  this  nature  has  generally  arisen  because  a  rate 
has  been  advanced.  The  invariable  defense  of  the  carrier 
company,  responsible  for  the  increase,  is  that  circumstances 
show  that  the  commodity  in  question  is  not  carrying  its 
due  share  of  the  costs  of  transportation.  The  appeal  to 
circumstances  introduces  the  application  of  those  secon- 
dary tests  of  reasonableness  upon  which  the  Board,  through 
the  absolute  impossibility  of  segregating  the  costs  of  trans- 
porting a  single  article  of  commerce,  has  come  to  rely. 

As  a  presumption  of  reasonableness  attaches  to  an  es- 
tablished rate,  not  conclusive  but  yet  necessary  to  rebut, 
the  justification  of  an  increased  rate  most  naturally  lies 
along  the  line  of  showing  a  change  in  circumstances  from 
that  under  which  the  original  rate  was  made.  The  con- 
venience of  this  method  is  apparent  at  once,  for,  without 
being  able  to  trace  all  the  costs  of  carrying  a  certain  ar- 
ticle, it  may  readily  be  shown  that  conditions  have  changed 
so  that  whatever  it  may  have  cost  in  the  past  it  now  rela- 
tively costs  more.  The  Board  has  admitted  the  reason- 
ableness of  this  deduction  and  has  recognized  the  legiti- 
macy of  increases  made  under  these  circumstances. 


124  CANADIAN  RAILWAY  RATES    ' 

Obviously  the  first  question  to  be  considered  is  the  im- 
mediacy of  the  circumstances  in  which  a  change  is  an 
admissible  ground  for  a  change  in  rates.  The  Board  has 
in  recent  decisions  widened  the  field  of  relevancy  to  a  con- 
siderable degree  so  that  its  record  is  a  developing  rather 
than  a  consistent  one.  It  seems  best  at  this  time  to  indi- 
cate and  work  out  the  implications  of  its  earlier  position 
and  leave  its  later  holdings  to  subsequent  notice.  In  the 
Pender  Cases  ^  the  Board  held  that  information  as  to 
changed  conditions  and  costs  should  be  as  to  the  particu- 
lar commodity  as  to  which  the  rate  increase  had  been 
made.  In  Davy  vs.  The  Niagara,  St.  Catharine  &  Toronto 
Railway  Company  and  The  Michigan  Central  Railway 
Company,^  the  first  railway  "submitted  evidence  to  show 
that  the  rate  of  wages  paid  its  employees  had  materially  in- 
creased," and  contended  that  it  was  justified  in  raising  the 
rate  on  wood  pulp  in  order  to  "maintain  the  road  on  a 
fair  financial  basis."  But  it  was  shown  that  there  was  no 
general  increase  in  rates,  the  wood  pulp  tariff  seeming  to 
be  the  only  one  revised.  Pointing  this  out,  the  Board  ruled 
that  the  old  rate  should  be  reestablished.  In  brief,  the 
Board  in  these  cases  refused  to  accept  the  proposition  that 
a  general  increase  in  costs  would  justify  an  isolated  in- 
crease in  rates.  Similarly,  in  Stockton  &  Wallinson  vs.  The 
Canadian  Pacific  Railway  the  Board  refused  to  permit  an 
increase  of  rates  on  fruit  because  conditions  were  not 
shown  to  be  changed,  and  the  old  rate  was  not  shown  to 
be  unprofitable.^ 

On  the  other  hand,  in  The  Canadian  Lumbermen's 
Association  vs.  The  Railways,*  the  carriers  put  in  volumi- 
nous exhibits  showing  sharp  increases  in  the  cost  of  main- 
tenance and  operation  of  the  lines  with  particular  refer- 
ence to  the  increased  cost  of  ties  and  lumber  for  cars.  The 
Board  said, "  it  is  fair  to  attach  some  importance  to  the  large 
increase  in  the  cost  of  maintaining  and  operating  railways." 
1  8/47.  2  7/190.  3  5/207.  *  6/138. 


EXCESSIVE  RATES  125 

In  the  eastern  part  of  Canada  the  railway  companies 
customarily  perform  certain  cartage  services  and  the  tolls 
are  under  the  control  of  the  Board.  An  advance  in  rates 
was  upheld  on  the  basis  of  an  increase  in  the  "cost  of 
horses,  the  cost  of  wages,  and  the  cost  of  feed."  ^  In 
this  instance  it  was  particularly  easy  to  prove  the  in- 
creased costs  that  attached  to  certain  traffic.  This  case 
may  be  compared  with  The  Red  Mountain  Railway  Com- 
pany vs.  The  Columbia  and  Western  Railway  Company,^ 
where  the  interswitching  charge  was  reduced  because  the 
cost  of  service  had  been  cheapened  by  the  estabhshment 
of  a  new  transfer  point. 

In  accepting  cost  data  as  evidence  of  the  reasonableness 
of  a  rate  increase  the  Board  has  insisted  that  they  shall  be 
sufficiently  complete  to  indicate  a  net  increase  in  cost. 
Thus,  in  the  Proposed  Increase  in  Rates  on  Hay  Shipped 
from  Ontario  and  Quebec  ^  the  Board  set  the  increased 
cost  of  railway  operations  over  against  an  increase  in  oper- 
ating economies  and  refused  to  sanction  the  advance. 
In  other  cases  it  has  rejected  cost  data  altogether  because 
not  sufficiently  complete  to  afford  ground  for  the  judg- 
ment that  there  had  been  a  net  change  in  cost  conditions. 

The  Board  has  also  rejected  as  cost  factors,  where  there 
has  been  change,  peculiar  elements  present  when  the 
original  rate  was  made.  In  the  Hay  Case,  just  referred  to, 
the  railway  urged  certain  peculiarities  of  the  hay  traffic, 
but  the  Board  replied  that  every  one  of  the  characteristics 
mentioned  had  been  incidental  to  the  traffic  for  years 
past.'*  Nor  will  it  admit  the  pertinency  of  a  change  in  con- 
ditions that  might  reasonably  be  foreseen  when  the  rate 
was  made.  When  the  Canadian  Freight  Association  in 
1909  applied  for  an  order  to  rescind  a  reduced  rate  on  fruit 
to  certain  Western  points,^  which  had  been  agreed  upon 
as  a  compromise  in  the  first  place,  on  the  ground  that  the 
existing  rate  situation  might  create  demands  for  rate  re- 
2  5/229.  3  7/238.  4  7/241.  6  5/245. 


126  CANADIAN  RAILWAY  RATES 

ductions  to  other  points  in  the  West,  the  Board  answered 
that  "the  railways  had  ample  opportunity  to  forecast  the 
conditions  now  complained  of"  when  the  rate  was  origi- 
nally adjusted,  and  refused  to  disturb  it.  To  a  second  plea 
that  the  rates  charged  on  fruit  were  relatively  unprofit- 
able, supported  by  a  comparison  by  those  charged  on 
lumber,  the  Board  was  equally  unsympathetic.  "Admit- 
ting the  existence  of  low  earnings  on  fruit  it  does  not  ap- 
pear that  this  is  pertinent  to  the  argument  that  rates  should 
be  raised.  For  the  comparison  between  fruit  rates  and 
iron  rates  was  as  much  in  point  in  1904  as  it  is  now." 

While  distance  in  haul  is  an  element  in  cost  it  does  not 
lend  itself  readily  to  employment  in  determining  whether 
a  rate  is  reasonable  in  itself.  It  has  a  greater  range  of 
usefulness  in  cases  involving  discrimination.  Indeed,  in 
cases  where  the  question  of  distance  has  been  raised,  in  the 
former  category,  practically  the  only  notice  given  to  it 
is  to  point  out  the  minor  position  it  occupies  as  a  deter- 
minable element  of  cost.  In  Doolittle  &  Wilcox  vs.  The 
Grand  Trunk  and  Canadian  Pacific  Railways  ^  the  Board 
rejected  an  application  to  place  the  rates  on  quarried  stone 
to  Toronto  on  a  mileage  basis  plus  a  charge  for  terminal 
service.   The  Board  declared:  — 

The  fundamental  ground  of  the  application  is  to  have  mileage 
form  the  sole  basis  in  making  these  rates.  To  those  who  have 
not  had  experience  in  ratemaking  the  argument  that  distance 
must  be  the  principal  factor  appeals  with  force;  but  the  history 
of  these  cases  shows  that  while  it  is  of  course  to  be  considered, 
yet  in  many  instances  it  is  a  minor  matter. 

This  opinion  may  be  compared  with  a  statement  in  the 
reply  to  the  application  of  the  Canadian  Portland  Cement 
Company  for  a  reduced  through  rate  from  Black  Rock  to 
Marlbank,  —  "  it  is  recognized  that  differences  in  traffic 
conditions  are  in  general  more  important  than  mere  mile- 
age comparisons."  ^  The  general  position  here  taken  indi- 
»  4/244.  2  5/232. 


EXCESSIVE  RATES  127 

cates  a  rather  close  accord  to  the  railway  man's  point 
of  view,  though  when  attention  is  given  to  cases  involv- 
ing discrimination,  it  will  be  noted  that  distance  receives 
greater  consideration.  The  holdings  considered  here  sim- 
ply mean  that  the  Board  has  a  low  opinion  of  the  element 
of  distance  as  a  factor  in  disclosing  fundamental  costs.  ^ 

Volume  of  traffic  has  been  recognized  by  the  Board  as 
a  valid  element  in  the  determination  of  rates,  ^  but  its  use 
has  been  largely  confined  to  cases  touching  discrimination 
and  its  discussion  is  reserved. 

The  position  here  developed  with  regard  to  secondary 
measures  of  costs  may  be  termed  the  Board's  earlier  posi- 
tion in  regard  to  these  factors  as  indirect  tests  of  a  reason- 
able rate.  Under  the  Board's  ruling,  that  changes  in  cost 
must  relate  directly  to  the  commodity  as  to  which  the  rate 
is  in  issue,  it  will  be  noted  that  it  is  extremely  difficult  for 
a  railway  to  justify  an  advance  on  this  basis.  Where  the 
plea  succeeded  it  was  usually  with  regard  to  some  easily 
segregable  cost  such  as  cartage  or  switching  rather  than 
with  respect  to  transportation  proper.  In  the  case  of  the 
increase  sanctioned  in  the  rates  on  lumber  the  nexus  be- 
tween an  increase  in  cost  in  lumber  to  the  railways,  and 
therefore  an  increase  in  the  cost  of  the  carriage  of  lumber, 
is  not  traced  out  and  truth  to  tell  appears  rather  doubt- 
ful. The  case  really  comes  within  the  scope  of  the  wider 
principle  enunciated  in  the  International  Pulpwood  Rates 
Case, 3  to  which  we  now  turn. 

The  history  of  this  case  can  be  given  in  a  few  words. 
The  railways  filed  a  tariff,  taking  effect  in  September, 
1912,  to  increase  the  through  rates  on  pulp  wood  from 
shipping  points  in  Eastern  Canada  to  manufacturing 
points  in  the  Eastern  States  of  the  Union.  The  paper 
manufacturers  of  New  York  and  a  number  of  Canadian 

^  Cp.  "For  distance  to  be  the  common  yardstick  of  reasonableness  it 
must  also  be  the  common  yardstick  of  cost."    VI  J.O.R.R.  38. 
2  VI  J.O.R.R.  55.  '  8/271. 


128  CANADIAN  RAILWAY  RATES 

producers  preferred  a  complaint  of  which   one   portion 
was  as  follows :  — 

The  continuance  of  the  rate  since  1903  is  presumptive  evi- 
dence that  the  companies  have  considered  them  profitable  and 
disproves  the  contention  that  the  tariff  has  not  borne  its  proper 
share  of  the  increased  cost  of  railway  operation,  and  are  there- 
fore too  low. 

In  reply  the  railways  claimed  that  it  was  quite  impos- 
sible to  segregate  the  cost  of  handling  this  particular  traffic, 
but  notwithstanding  argued  the  case  on  the  general  issue 
that  the  expenses  of  conducting  transportation,  following 
the  general  tendency,  had  greatly  increased.  In  addition, 
they  submitted  comparisons  to  show  that  other  rough 
lumber  products  were  paying  a  higher  rate  than  pulp 
wood.  While  other  factors  entered  into  the  decision,  the 
force  of  the  general  contention  was  granted.  "It  has  been 
fairly  established,"  the  Board  said,  "from  time  to  time, 
that  the  expense  of  conducting  transportation,  following 
the  universal  tendency,  has  increased  considerably  during 
the  past  few  years."  The  recognition  of  this  principle 
was  a  most  important  victory  for  the  railways,  which  had 
been  arguing  the  legitimacy  of  this  point  of  view,  ever 
since  the  establishment  of  the  Board. 

Mr.  Commissioner  McLean  dissented  from  the  view  of 
his  colleagues  who  sat  on  the  case.  He  pointed  out  that 
the  Board  had  hitherto  taken  the  position  that  general 
allegations  as  to  increased  cost  of  service  were  not  con- 
clusive as  to  the  reasonableness  of  a  given  rate:  — 

Personally  I  am  of  the  opinion  that  the  railroads  should  adduce 
particular  information  as  to  the  increase  of  the  particular  costs 
affecting  the  traffic  in  question,  if  increase  in  cost  is  to  have 
any  adequate  weight  in  justifying  the  reasonableness  of  the  rate 
attacked. 

In  view  of  the  dissenting  opinion,  and  the  fact  that  other 
elements  were  a  factor  in  the  judgment  that  sanctioned  the 


EXCESSIVE  RATES  129 

increase,  the  value  of  the  case  as  a  precedent  might  be 
questioned.  But  in  a  subsequent  decision  the  principle 
that  a  general  increase  of  costs  is  a  good  defense  to  an 
advance  in  a  specific  rate  has  been  affirmed  under  circum- 
stances that  can  leave  no  doubt  as  to  its  significance.  The 
rate  on  pressed  brick  from  Bradford,  Pennsylvania,  to 
Windsor,  Ontario,  early  in  1912,  was  increased  from  $1.60 
a  ton  to  $2.  A  complaint  was  entered  and  came  to  hearing  ^ 
in  April,  1912,  before  the  International  Pulpwood  Rates 
Case  was  adjudicated.  Dealing  with  the  increase  in  so  far 
as  the  Canadian  roads  were  concerned,  the  Board  pointed 
out  that  no  evidence  had  been  presented  to  show  that 
there  had  been  an  increase  of  cost  of  any  kind  connected 
with  this  traffic  that  would  warrant  the  advance  and  dis- 
allowed the  increase  sought.  Subsequently  leave  was 
obtained  for  a  rehearing  and  when  the  case  came  up 
for  disposition,  Mr.  Commissioner  McLean,  who  had  dis- 
sented in  the  International  Rates  Case,  wrote  the  opinion 
and  in  referring  to  the  effect  of  that  case,  said :  — 

This  judgment  in  effect  sets  out  that  not  particular  cost  alone, 
or  conditions  peculiar  to  that  particular  commodity,  but  all 
material  conditions  and  costs,  including  therewith  comparisons 
of  rates,  may  be  given  such  weight  as  seems  reasonable  to  the 
Board.  It  follows  that  for  this  purpose  all  tariffs  on  file  with 
the  Board,  whether  referred  to  in  the  record  or  not,  are  part  of 
the  record.  The  present  rehearing  must  be  dealt  with  in  the  line 
of  the  principles  which  the  above  mentioned  case  has  developed. 

The  Board  has  thus  abandoned  the  position  taken  and 
maintained  during  the  larger  part  of  its  history.  It  is  true 
that  this  widened  basis  of  judgment  does  not  destroy  the 
value  of  evidence  of  the  specific  nature  demanded  by  the 
earlier  canon  when  it  is  available,  but  it  does  make  it  very 
much  easier  for  the  railway  companies  to  justify  the  ad- 
vance of  individual  rates.  Evidence  of  specific  changes  in 

»  8/46  ff. 


130  CANADIAN  RAILWAY  RATES 

circumstances  are  no  longer  absolutely  necessary  if  an 
advancing  cost  curve  can  be  shown. 

It  is  difficult  to  determine  the  degree  of  importance  that 
will  ultimately  attach  to  this  method  of  judgment.  In 
the  two  cases  just  considered  some  reliance  was  placed 
upon  comparisons  between  the  ton  mile  rate  upon  similar 
products.  The  rates  upon  rough  lumber  products  were 
considered  in  comparison  with  pulp  wood.  In  the  Pressed 
Bricks  Case  rates  on  coal  were  scrutinized.  These  com- 
parisons, however,  were  not  the  controlling  elements  in 
the  decisions  but  were  rather  appealed  to  as  conj&rmatory 
of  the  reasonableness  of  the  rates  fixed  upon.  The  new 
holding  marked  the  assumption  by  the  Board  of  a  w^der 
discretion  in  the  determination  of  rate  changes. 

The  importance  of  this  widened  basis  of  decision  makes 
it  necessary  to  give  it  some  consideration.  It  is  obvious 
that  unless  there  goes  with  it  a  wide  and  careful  use  of 
comparison  it  means  a  considerable  degree  of  piecemeal 
revision  upwards  may  be  accomplished.  This  carries  the 
danger  of  a  lack  of  due  regard  for  equitable  relation- 
ships between  the  rates  on  diflferent  classes  of  traffic.  This 
danger  is  particularly  likely  to  occur  between  classes  of 
non-competitive  traffic.  As  to  the  influence  of  the  deci- 
sion from  the  standpoint  of  economics  it  makes  it  easier 
for  the  railways  to  employ  their  favorite  principle  of 
charging  what  the  traffic  will  bear.  It  permits  this  prin- 
ciple to  slip  in  by  the  back  door.  This  is  quite  clear.  If  for 
any  reason  an  increase  of  revenue  is  necessary,  instead  of 
a  general  revision  of  all  rates  with  due  regard  to  their  equi- 
table relation  to  each  other,  it  permits  the  railways  to 
select  the  particular  commodities  upon  which  they  be- 
lieve they  may  easiest  saddle  the  increases.  It  is  possible 
we  have  a  hint  of  this  in  the  judgment  on  import  rates 
delivered  shortly  after  the  Eastern  Rates  decision.  The 
companies  desired  materially  to  increase  their  import 
rates  which  were  on  a  relatively  low  basis.    "Trqated  as 


EXCESSIVE  RATES  131 

individual  rates,"  the  Board  said,  "they  undoubtedly  are 
low,"  but  ruled  that  no  action  should  be  taken  in  this  case 
until  the  effect  of  the  Eastern  Rates  judgment  could  be 
clearly  demonstrated.^ 

Moreover,  it  operates  to  the  disadvantage  of  the  indi- 
vidual complainant  who  appears  before  the  Board.  As 
against  a  submission  of  evidence  dealing  with  the  precise 
commodity  the  rate  for  which  is  in  dispute  the  railways 
may  present  an  array  of  general  data,  which  in  the  natm-e 
of  the  case  the  complainant  could  not  challenge  except  at 
great  expense  and  difficulty.  Finally,  in  so  far  as  it  widened 
the  scope  of  discretion  for  the  Board,  by  departing  from 
specific  evidence,  it  marked  the  assumption  of  more  free- 
dom by  that  body.  The  Board  has  rather  carefully  guarded 
itself  imder  the  new  canon  from  sanctioning  isolated  in- 
creases in  rates  where  the  effect  might  be  to  create,  inad- 
vertently, discrimination.  In  most  instances  it  has  tested 
the  rates  by  careful  comparison  with  the  rates  upon  articles 
of  a  similar  nature  or  by  comparisons  of  car  mile  earnings, 
ton  mile  rates,  or  cost  of  service  per  car.  Thus  Messrs. 
Auger  &  Son,  and  the  D'Auteuil  Lumber  Company,  of 
the  City  of  Quebec,  objecting  to  a  new  tariff  providing  for 
increases  on  pulp  wood  to  Mechanicsville,  New  York,  from 
the  Eastern  Townships,  failed  to  gain  their  case  because 
it  was  established  that  pulp  wood,  on  the  proposed  rate, 
loading  only  20.25  tons  per  car,  coupled  with  high  cost 
of  car  service,  would  give  relatively  low  earnings  com- 
pared with  other  tenth-class  commodity  traffic  such  as 
brick  and  gravel.^  In  a  somewhat  similar  complaint  made 
by  the  Lake  Superior  Paper  Company,  Ltd.,  against  the 
Algoma  Central  &  Hudson  Bay  Railway,  the  Board  sup- 
ported the  rate  set  by  the  railway,  basing  its  judgment  on 
a  comparison  with  rates  on  pulp  wood  as  set  forth  in  the 
Eastern  Rates  Case.^  Thus,  in  both  these  instances,  where 
it  was  alleged  increases  on  single  commodities  were  un- 
»  VI  J.O.R.R.  380.  2  11/165  ff.  ^  VI  J.O.R.R.  396. 


132  CANADIAN  RAILWAY  RATES 

just,  although  the  rate  was  held  reasonable,  the  determin- 
ation was  based  on  specific  factors. 

The  Board  has  recognized  that  a  circumstance  in  which 
a  change  may  take  place  of  significance  in  rate-making 
is  the  value  of  the  commodity  in  question.  The  Board  has 
not  confined  itself  solely  to  a  consideration  of  cost  data. 
There  are  a  number  of  cases  which  hold  that  an  increase  in 
the  value  of  a  commodity  is  a  legitimate  reason  for  an  ad- 
vance in  its  rate  for  carriage.  In  the  Lumber  Rates  case  ^ 
already  referred  to,  the  Board  expressed  the  opinion  that 
the 

strongest  evidence  submitted  for  the  companies  in  justification 
of  the  increased  rates  on  lumber  was  the  very  large  increase  in 
the  value  of  timber  during  the  last  ten  years.  The  value  of  the 
conunodity  hauled  is  an  element  that  may  properly  be  consid- 
ered in  ratemaking.  In  general  the  greater  value  of  the  article 
the  greater  the  rate  may  be.  There  are  of  course,  many  other 
elements  to  be  considered  in  deciding  on  the  reasonableness  of  a 
rate,  which  may  in  some  cases  outweigh  the  elements  of  increased 
value  of  the  commodity. 

This  perhaps  is  the  clearest  statement  of  the  Board's 
view,  but  the  principle  has  been  employed  in  other  cases. 
A  complaint  was  launched  by  mine  operators  at  Salmo, 
British  Columbia,  that  the  Nelson  &  Fort  Sheppard  Rail- 
way was  forcing  the  complainants  to  ship  their  ore  at  rates 
based  on  a  valuation  of  twenty-five  dollars  per  ton.^  The 
operators  claimed  that  their  ore  was  of  value  lower  on  the 
average  than  twenty-five  dollars  a  ton.  The  Board  ordered 
additional  rates  to  be  put  into  effect  to  cover  ore  ship- 
ments of  a  value  of  fifteen  and  twenty  dollars  a  ton,  ob- 
serving, that  it  did  "  not  appear  reasonable  to  bulk  the  ore 
from  Salmo  under  the  twenty-five  dollar  valuation  when 
it  is  admittedly  of  much  lower  value."  A  change  in  the 
classification  of  tobacco,  involving  an  increase  of  rates, 
was  disallowed,  it  being  stated,  among  other  reasons,  that 

1  6/141.  *  9/276. 


EXCESSIVE  RATES  133 

the  "railways  did  not  present  exact  information  regard- 
ing values  in  justification  of  their  proposed  increased  rat- 
ing." ^  An  application  for  the  same  rate  on  hardwood 
flooring  as  that  paid  on  fir,  hemlock,  etc.,  to  Vancouver 
was  denied  because  hardwood  flooring  was  "a  more  valu- 
able commodity."  ^  In  the  Davy  Case  the  fact  that 
"pulp  had  gone  down  in  value  $5.00  per  ton"  weighed 
in  the  decision  against  an  increase  in  rates.^  On  the  whole, 
however,  the  principle  has  not  received  extended  use  where 
the  reasonableness  of  a  rate  in  itself  was  at  issue.  The 
failure  of  value  considerations  to  enter  more  conspicuously 
into  rate  determinations  in  Canada  will  be  discussed  after 
a  survey  has  been  made  of  its  use  in  cases  involving  dis- 
crimination. 

1  6/221.        *  7/254.        »  7/190. 


CHAPTER  VII 

RATE  THEORIES  DEVELOPED  IN  CONNECTION  WITH 
THE   CHARGE   OF   UNJUST    DISCRIMINATION 

§  1.  The  second  main  category  into  which  appeals 
against  railroad  tolls  fall  concerns  unjust  discrimination. 
Indeed,  because  of  the  range  of  appeal  and  the  magnitude 
of  the  issues  presented,  it  might  well  be  placed  first  in  a 
consideration  of  railroad  rates.  But  the  reasonableness  of 
a  rate  yer  se  raises  a  more  fundamental  question  to  which 
the  question  of  discrimination  is  after  all  secondary.  The 
latter  implies  at  the  outset  that  the  rate  under  complaint 
is  satisfactory  when  viewed  without  regard  to  its  relation 
to  other  rates.  The  former  goes  to  the  root  of  the  problem 
and  discusses  the  basic  factor  with  which  the  latter  begins. 
Out  of  deference  to  this  view  the  reasonableness  of  rates, 
in  themselves,  as  a  problem  of  administrative  ruling  has 
been  considered  first. 

On  the  other  hand,  charges  involving  discrimination 
introduce  to  a  greater  degree  conflicting  interests.  If  we 
leave  out  for  a  moment  the  general  interests  of  the  con- 
sumer, which  is  present  in  both  instances,  while  a  dispute 
over  a  rate  as  reasonable  in  itseK  touches  two  parties,  the 
shipper  and  the  railway,  a  dispute  where  discrimination 
is  alleged  brings  in  a  third  interest,  the  party  to  whom 
the  benefits  of  the  alleged  discrimination  accrue.  The  dis- 
cussion of  discrimination  is  mixed  up  with  all  the  acerbity 
engendered  by  rivalry  for  markets  and  trade.  An  unwise 
decision  may  nullify  the  effect  of  protective  legislation,  or 
geographical  location,  and  indeed  injuriously  disturb  the 
normal  industrial  organization  of  a  country. 

In  the  first  part  of  this  study  an  effort  was  made  to  pre- 
sent the  salient  characteristics  of  the  transportation  situa- 


UNJUST  DISCRIMINATION  135 

tion  in  Canada.  The  end  in  view  was  to  prepare  for  an 
intelligent  appreciation  of  the  trend  of  the  decisions  of  the 
Board.  In  the  review  of  cases  concerned  with  the  inherent 
reasonableness  of  rates  we  have  noted  how  public  aid  and 
public  endorsement  of  railway  lines  is  reflected  in  the  anx- 
iety of  the  Board  to  protect  the  integrity  and  stability  of 
these  lines,  lest  Canadian  credit  be  injiu'ed  and  the  possi- 
bility of  building  other  lines  in  the  future  be  thereby  cur- 
tailed. It  is,  however,  particularly  with  regard  to  judg- 
ments in  respect  to  discrimination  that  the  value  of  the 
preliminary  study  should  appear.  The  historical  back- 
ground, the  geographic  factor,  these,  in  many  instances, 
condition  the  holding  of  the  Board.  These  are  the  factors 
that  provide  permanent  and  intractable  elements  in  the 
resolution  of  rate  problems,  especially  in  cases  of  alleged 
discrimination. 

It  will  be  recalled  that  the  development  of  charter  and 
statutory  control  was  traced  down  to  its  present  position. 
There  it  was  pointed  out  that  the  dangers  of  unjust  dis- 
crimination were  early  perceived.  In  charters  and  general 
acts  unjust  discrimination  was  specifically  legislated 
against,  and  this  with  increasing  inclusiveness  and  minute- 
ness as  the  evils  were  more  clearly  discerned.  Neverthe- 
less, it  was  recognized  that  no  mechanical  rule  of  equality 
of  tolls  could  cover  all  cases,  a  principle  that  the  Board 
early  elaborated  in  language  of  its  own:  — 

It  is  not  in  the  nature  of  things  possible  to  secure  anything 
like  absolute  equality  of  treatment  to  all  p>ersons  who  use  the  rail- 
ways, or  even  like  treatment  to  all  who  are  using  the  same  rail- 
way. The  general  public  have  theoretically  a  right  to  complain 
if  the  people  in  one  or  more  sections  of  the  country  served  by  a 
particular  railway  are  given  a  better  service  than  the  people  of 
other  sections;  but  with  every  desire  on  the  part  of  the  railway 
company  to  accord  equally  fair  treatment  to  all  patrons  over  its 
entire  system,  circumstances  and  conditions  are  too  controlling, 
oftentimes,  to  be  resisted  or  overcome.^ 

»  Stamford  Junction  Case.  3  C.R.C.  259. 


136  CANADIAN  RAILWAY  RATES 

Accordingly  the  requirements  have  been  deemed  to  be 
satisfied  when  traffic  moving  under  "substantially  similar 
circumstances  and  conditions"  bears  the  same  rate,  and 
upon  the  Board  devolves  the  duty  of  determining  what 
constitutes  these  "circumstances  and  conditions."  Essen- 
tially problems  of  discrimination,  which  have  come  within 
the  purview  of  the  Board,  have  turned  on  differences  in 
geographical  location,  in  the  traffic  conditions  under  which 
freight  is  hauled  or  in  the  nature  of  the  commodity  itself. 
This  division  will  serve  our  purpose  to  bring  forward  in 
orderly  manner  the  holdings  of  the  Board. 

§  2.  From  the  standpoint  of  freight  movement  geo- 
graphical location  is  one  of  the  most  important  influences 
which  confront  the  railway  traffic  manager.  He  has  to 
make  a  study  of  the  peculiar  possibilities  and  necessities 
of  each  traffic  center,  and  largely  on  the  wisdom  of  his  de- 
cisions hinges  much  of  the  prosperity  of  his  railway.  Obvi- 
ously geographical  location  may  tend  to  affect  freight  rates 
from  a  given  center  in  certain  typical  ways.  The  city  or 
town  or  district  in  question  may  have  the  advantage  of 
being  served  by  two  or  more  competing  lines  of  the  same 
nature.  Thus  certain  points  may  be  connected  by  lines 
of  unequal  length  and  the  efforts  of  the  more  circuitous 
route  to  share  in  the  traffic,  while  beneficial  to  the  place 
concerned,  raises  problems  of  discrimination  for  other 
traffic  centers  on  its  line.  Again,  there  may  be  commiuii- 
cation  between  two  centers  by  transportation  agencies  of 
a  different  nature,  that  is,  by  water  and  by  rail  or  by  a 
combination  of  the  two.  Finally,  a  variant  of  these  condi- 
tions occurs  when  the  favorably  located  center  is  a  receiv- 
ing point  rather  than  a  shipping  point,  and  low  rates  to  it 
from  one  direction  provoke  a  demand  for  similar  accommo- 
dation from  other  points;  that  is,  where  there  is  competi- 
tion for  markets. 

The  interaction  of  these  conditions  produces  some  of  the 
knottiest  problems  in  rate  determination  that  come  be- 


UNJUST  DISCRI^nNATION  1S7 

fore  the  Board.  Not  infrequently  all  are  involved  in  a 
single  decision  or  group  of  related  decisions.  Thus  the 
cases  with  which  the  Board  has  had  to  deal  relating  to  oil 
and  sugar  rates  between  Winnipeg  and  the  western  Ontario 
peninsula  has  brought  up  the  relationship  of  water  and  rail 
rates  and  competing  routes,  with  pendent  problems  of  the 
competition  of  markets  arising  from  the  movement  of  oil 
from  Kansas  and  sugar  from  British  Columbia. 

Two  principles  may  be  premised  in  the  Board's  disposi- 
tion of  these  cases.  The  statute  explicitly  provides  for  the 
recognition  of  competing  points  and  competing  tariffs,  so 
that  the  Board  is  relieved  from  finding  a  basis  for  dis- 
criminative treatment  of  competitive  rates  in  the  principles 
of  joint  costs  or  considerations  of  public  policy.  In  addi- 
tion to  this  it  has  repeatedly  held  that  it  is  at  the  discre- 
tion of  a  carrier  whether  it  shall  or  shall  not  meet  a  com- 
petitive rate.  In  this,  of  course,  it  has  but  followed  the 
lead  of  American  and  English  precedents.  In  the  British 
Columbia  Sugar  Refining  Company  vs.  The  Pere  Mar- 
quette Railway  Company,  the  counsel  for  the  Canadian 
Pacific  Railway,  in  his  argument  said :  — 

It  may  be  quite  true,  as  pointed  out  by  the  complainants,  that 
a  reduction  has  been  made  which  enables  the  competitors  of  the 
complainants  in  Wallaceburg  to  have  the  advantage  of  lower 
rates  to  the  three  points  mentioned  than  they  obtained  formerly, 
but  that  is  not  a  condition  for  which  the  Canadian  Pacific  Rail- 
way Company  is  at  all  responsible.  If  a  competing  company 
wishes  to  make  a  substantial  reduction  in  rates  for  the  purpose 
of  giving  advantage  to  a  refinery  situated  on  its  own  line,  it  is,  I 
presume,  at  liberty  to  do  so,  but  by  doing  so  it  cannot  compel  other 
railway  companies  on  whose  lines  competing  refineries  are  situ- 
ated, to  make  similar  reductions  in  their  rates  to  common  points. 

This  argument  by  the  railroads,  which  puts  their  case 
in  a  nutshell,  was  accepted  and  quoted  by  the  Board  in 
its  judgment,  and  made  its  own  position:  — 

A  railway  must  of  necessity  be  given  considerable  discretion  m 
regard  to  meeting  competition,  and  the  forms  of  competition  to 


138  CANADIAN  RAILWAY  RATES 

which  it  is  subjected  are  varied.  It  is  patent  that  if  a  railway 
estabUshes  a  rate  between  Toronto  and  Winnipeg,  it  is  entirely 
within  the  discretion  of  another  railway  connecting  such  points, 
whether  it  shall  or  shall  not  meet  this  rate.  If  the  second  railroad 
should  decide  not  to  meet  this  rate,  this  does  not  of  itself  give 
the  Board  jurisdiction  to  order  it  to  meet  the  lower  rate. 

Thus  the  principle  of  competition,  explicitly  recognized 
and  guarded,  cuts  across  the  power  of  the  Board  to  remedy 
all  grievances  arising  from  discriminative  treatment.^ 

Of  the  various  typical  forms  of  geographical  advantage 
in  Canada  undoubtedly  the  most  important  is  the  presence 
of  water  competition.  Reference  at  an  earlier  stage  of  the 
study  has  been  made  to  the  extensive  system  of  water- 
ways that  Canada  has  built  up.  It  was  shown  that  while 
the  construction  and  improvement  of  the  waterways  was 
undertaken  with  a  relatively  narrow  and  immediate  end  in 
view,  the  upshot  is  that  Eastern  Canada  is  furrowed  with 
improved  waterways  capable  of  carrying  freight  traffic. 
The  time  is  now  ripe  to  consider  the  effect  of  this  outcome 
upon  railway  rates  of  carriage. 

In  railroad  circles  the  pervasive  power  of  water  compe- 
tition has  long  been  recognized,  but  it  is  doubtful,  apart 
from  special  students  of  the  problem,  if  the  importance  of 
this  factor  has  been  generally  known.  The  findings  of  the 
Board  in  the  Western  Rates  Case  are  therefore  of  particu- 
lar interest  for  the  light  that  they  throw  upon  the  influence 
of  the  waterways  upon  railway-rate  levels.  In  this  case  which 
covered  a  variety  of  grievances,  the  nub  of  the  complaint 
was  that  the  East  enjoyed  lower  rate  levels  than  the  West. 
This  necessitated  a  careful  investigation  of  the  effects  of 
competition  by  water  carriers  in  modifying  rate  levels  for 

^  5/280.  Cp.  "The  Board  has  time  and  again  recognized  that  it  is 
within  the  discretion  of  a  railway  to  meet  the  competition  of  short  line 
mileage.  The  discretion  of  a  railway  in  regard  to  meeting  water  compe- 
tition has  been  so  often  emphasized  by  the  railway  regulative  bodies  of' 
Canada,  England  and  the  United  States,  that  mention  of  it  is  alone  suflB- 
cient."   Ibid. 


UNJUST  DISCRIMINATION  139 

carriage  by  rail.  Much  evidence  was  presented  and  the 
conclusion  of  the  Board  is  contained  in  the  judgment.  It 
is  sufficiently  important  to  warrant  insertion  here:  — 

In  the  matter  of  water  competition  there  can  be  no  doubt  at 
all  as  to  the  efficiency  of  the  waterways  spread  through  Eastern 
Canada  from  its  easterly  coast  and  terminating  with  the  western 
limit  of  the  most  westerly  division  of  the  East  at  Port  Arthur 
and  Fort  William.  ^ 

While  with  respect  to  the  Maritime  Provinces  it  declared: 

The  rates  in  the  maritime  provinces  are  low,  not  only  as  a  re- 
sult of  water  competition,  but  also  as  a  result  of  rates  obtaining 
on  the  Intercolonial,  whose  operations  have  largely  resulted  in 
deficits. 

This  conclusion,  a  finding  of  fact,  is  repeated  at  several 
points  in  the  judgment.  With  respect  to  traffic  in  certain 
sections  of  Ontario,  where  it  was  argued  that  rates  could  not 
be  affected  by  water  competition,  cities  such  as  St.  Thomas 
and  Stratford,  the  Board  replied  that  the  issue  had  been 
presented  "in  the  large,"  that  a  comparatively  small  part 
of  the  traffic  in  Eastern  territory  was  unaffected  which 
was  entirely  lost  in  the  general  aggregate  of  traffic  moving 
under  water-compelled  rates.  In  dismissing  the  charge  of 
unjust  discrimination  on  this  basis  the  Board  said:  — 

On  economic  principles  special  rates  to  competitive  points  or 
in  competitive  zones,  as  aheady  noted,  have  been  justified.  They 
have  been  practically  always  regarded  as  proper  in  principle  and 
probably  must  apply  for  all  time  in  the  future,  at  least  until  such 
time  as  railways  cease  to  be  operated  for  profit  and  are  carried  on 
as  a  matter  of  governmental  operation  irrespective  entirely  either 
of  cost  or  of  value  of  services,  or  the  necessity  of  obtaining  business.'' 

The  economic  justification  to  which  the  above  excerpt 
alludes  is  simply  an  example  of  the  workings  of  the  prin- 
ciple of  joint  and  secondary  costs.  The  railways  have  to 
meet  annually  large  payments  which  will  accrue  whether 
traffic  is  carried  or  not.  Now  any  freight  that  will  yield 
»  File  18755,  Judgment,  p.  17  ff.  ^  Ibid.,  p.  23. 


140  CANADIAN  RAILWAY  RATES 

returns  above  the  direct  out-of-pocket  costs  of  handling  it 
will  be  profitable.  The  surplus  above  out-of-pocket  costs 
will  be  available  to  meet  the  indirect  costs.  The  railways 
claimed  that  while  water  competition  in  the  East  forced 
rates  below  what  they  could  afford  to  carry  freight  in  gen- 
eral for,  yet  the  rates  obtained  exceeded  direct  out-of- 
pocket  costs  and  the  freight  was  therefore  desirable  to 
handle.  The  Board  allowed  this  position,  and  found  that, 
while  discrimination  existed  as  between  the  rates  charged 
east  and  west  of  Port  Arthur,  that  discrimination  was 
"neither  undue  or  unjust." 

The  Board  does  not  deny  the  desirability  of  rates  in 
Eastern  Canada  and  in  Western  Canada  approaching  the 
same  level.  Thus  in  the  Eastern  Rates  Case,  in  granting 
increases  in  Eastern  Canada  following  the  five  per  cent 
advance  authorized  by  the  Interstate  Commerce  Commis- 
sion, it  declared:  — 

There  is  no  doubt  but  what  the  Act  requires  and  the  general 
pubUc  interest  of  the  country  as  a  whole  demands,  that,  if  prac- 
ticable, eastern  rates  should  be  advanced  so  that  the  different 
schedules  may  more  nearly  approach  a  parity.^ 

Further,  the  Board  has  recognized  that  as  a  result  of 
water  competition  much  traffic  is  carried  at  a  rate  that 
yields  very  little  profit.  Discussing  a  13.1  cent  rate  from 
New  London,  Connecticut,  to  Toronto  on  Pacific  Coast 
lumber  taking  the  Panama  Canal  route,  the  Board 
pointed  out  that  this  was  simply  the  rail  proportion  of  a 
combined  ocean  and  rail  rate  in  competition  with  the  over- 
land rate  of  sixty-seven  cents,  adding:  — 

It  must  be  clear  to  all  that  if  the  low  proportionals  accruing  to 
the  Canadian  carriers  on  international  traflBc,  or  even  the  entire 
rate  on  much  of  the  transcontinental  business  as  it  stands  to-day 
were  to  be  regarded  as  fair  measures  in  the  fixing  of  local  rates, 
it  would  only  remain  to  conjecture  how  long  the  companies 
might  continue  solvent.^ 

1  VI  J.O.R.R.  154.  *  Ibid.,  207. 


UNJUST  DISCRIMINATION  141 

The  Western  Rates  judgment  is  especially  important 
because  of  the  area  affected,  —  practically  the  whole  of 
Canada,  —  but  is  in  keeping  with  earlier  decisions.  In- 
deed, wherever  discrimination  has  been  charged  and  it 
could  be  shown  that  the  rate  against  which  it  was  leveled 
had  been  compelled  by  water  competition  or  was  itself 
levied  upon  a  broken  water-and-rail  route,  the  Board  has 
invariably  recognized  that  there  was  thereby  created  a 
dissimilarity  of  circumstance  which  forbade  relief  under 
the  clause  against  discrimination.  Thus,  in  The  Canadian 
Oil  Companies,  Limited,^  complaint  of  discrimination  in 
the  oil  rate  from  Petrolia,  Ontario,  to  Winnipeg,  a  com- 
parison was  instituted  with  the  rate  paid  by  the  Imperial 
Oil  Company  from  Sarnia  to  the  same  market.  It  was 
shown  that  the  latter  company  shipped  oil  by  tank  ves- 
sels from  Sarnia  to  Fort  William  at  a  very  low  rate,  which 
became  a  part  of  the  total  rate  to  Winnipeg.  The  judg- 
ment Commissioner  said:  — 

I  am  unable  to  see  why  the  low  rate  basis  afforded  by  water 
transportation  in  the  case  of  produce  not  conveyed  by  the  rail- 
way should  be  used  as  an  argument  for  a  reduction  in  the  rate  of 
the  produce  carried  by  the  railway.  .  .  .  Nor  is  the  low  rate 
basis  by  water  an  evidence  of  the  unreasonableness  of  the  rail  rate. 

Characterizing  this  portion  of  the  argument  as  being 
"based  on  an  erroneous  construction  of  the  policy  to  be 
adopted  in  the  matter  of  water  transportation,"  he  held 
it  must  therefore  fail.  The  decision  was  concurred  in  by 
the  other  Commissioners  who  sat  on  the  case.  A  similar 
position  may  be  cited  in  the  British  Columbia  Interior 
Rates  Case :  ^  — 

The  low  rates  to  the  coast  are  made  necessary  in  order  to  en- 
able the  railway  companies  to  obtain  traffic  in  competition  with 
ocean  carriers.  Such  a  practice  is  distinctly  authorized  by  the 
Railway  Act. 

»  7/206  ff.  '  3/136. 


142  CANADIAN  RAILWAY  RATES 

The  rates  on  water-borne  traffic  do  not  themselves  come 
within  the  scope  of  the  Commission's  powers,  except  where 
steamer  lines  run  from  one  part  of  Canada  to  another 
under  agreement  with  a  railroad  or  are  owned  by  a  rail- 
way. It  is  of  interest,  however,  to  note  the  Board's  atti- 
tude as  to  the  necessity  of  rate  regulation  in  the  case  of 
traffic  moving  by  water.  This  may  be  gathered  in  the 
opinion  handed  down  on  The  Blind  River  Board  of  Trade 
Case  which  involved  the  rates  on  lake-borne  traffic  of  the 
Grand  Trunk  as  between  charges  to  Blind  River  and 
Sault  Ste.  Marie :  — 

It  is  safe  to  say  that  water  transportation  has  been  recognized 
as  more  highly  comj)etitive  than  railway  transportation,  and 
it  is  on  this  account  parliament  has  not  deemed  it  necessary  to 
intervene  here  to  hold  the  balance  true  between  the  shipper  and 
the  transportation  agency.  There  has  also  been  rehance  on 
water  transportation  as  a  regulative  factor.^ 

Finally,  the  general  scope  of  the  railways'  discretion  in 
meeting  a  water-competition  situation  is  well  stated  in  a 
decision  permitting  adjustments  following  the  opening  of 
the  Panama  Canal.  The  operation  of  the  canal  caused  con- 
siderable dislocation  of  the  general  traffic  on  transconti- 
nental business.  The  Eastern  boards  of  trade  and  rail- 
ways were  in  agreement  as  to  the  reality  of  competition. 
In  authorizing  a  tariff  low  enough  to  permit  traffic  to  move 
by  rail  the  Board  declared :  — 

Whether  such  rates  are  or  are  not  put  in  is  a  matter  entirely 
for  the  railways.  They  cannot  be  ordered  by  the  Board.  If,  how- 
ever, the  railways  put  such  rates  into  effect,  they  wiU  not  be 
considered  as  rates  reflecting  in  any  degree  the  measure  of  the 
reasonableness  of  the  service,  ...  or  afford  the  slightest  index 
as  to  the  reasonableness  of  rates  charged  between  points  not 
affected  by  Panama  competition. '^ 

It  does  not  require  much  reflection  to  grasp  the  sig- 
nificance of  these  findings.    They  go  far  to  establish  the 
»  15  C.R.C.  147.  2  11/184. 


UNJUST  DISCRIMINATION  143 

truth  of  the  contention  put  forward  earlier  that  the  nat- 
ural features  of  the  Canadian  situation  tend  to  reduce 
real  power  of  a  regulative  board  of  commissioners  to  fairly 
narrow  limits.  The  findings  of  fact  in  numerous  cases 
reveal  the  preponderating  influence  of  water  competi- 
tion on  railway  rates  in  the  Eastern  Provinces  and  the 
Board's  lack  of  power  to  control  this  preponderatingly 
influential  factor.  Thus,  in  five  out  of  nine  Provinces  (ad- 
ding British  Colmnbia,  six)  conditions  that  sharply  limit 
the  actual  influence  of  the  Board  exist  as  permanent  ele- 
ments in  the  situation.  The  economic  significance  of  this 
fact  is  undeniable.  If  water  competition  is  the  real  arbiter 
of  rates,  the  real  force  that  shapes  them,  in  these  Prov- 
inces, and  the  findings  of  fact  say  so,  then  the  Board, 
however  lavishly  endowed  with  legislative  sanction,  is 
after  all  secondary  and  ancillary.  It  may  have  great 
practical  usefulness  in  other  fields  of  its  labor,  but  here 
it  is  "cabin'd,  cribbed,  and  confined"  by  the  force  of  cir- 
cumstances. 

If  the  effect  of  water  competition,  touching  the  trans- 
portation situation  at  a  great  many  points,  is  to  make 
competition  master  of  the  situation,  it  is  proper  to  inquire 
its  effects  upon  the  industrial  organization  of  the  country. 
Obviously  it  takes  out  of  the  hands  of  the  Board  the  power 
of  control  over  harmonious  development  by  rate  adjust- 
ments. It  might  be  claimed  that  all  this  means  is  that  in- 
dustries which  locate  beyond  localities  of  special  natural 
advantage  cannot  have  their  mistakes  remedied  by  the 
Board.  But  it  does  not  necessarily  guarantee  fair  value  to 
natural  advantages  of  location.  It  does  not  leave  the  way 
clear  to  natural  centers  for  the  retention  of  advantages 
due  to  situation,  and  the  effect  is  less  certain  where  a  dis- 
trict is  still  in  the  developing  stage  industrially.  For  there 
resides  with  the  railways  the  discretion  as  to  whether  or 
not  they  shall  meet  water  competition.  The  principle  that 
a  carrier  may  neglect  or  meet  the  competition  of  a  rival 


144  CANADIAN  RAILWAY  RATES 

carrier  has  been  affirmed  repeatedly  by  the  Board  and  will 
be  more  fully  discussed  later.  It  is  pertinent  to  note  here, 
though,  that  this  applies  equally  to  the  competition  of  rival 
carriers  by  water.  Thus,  when  the  railway  companies  de- 
cided to  neglect  the  local  water  competition  for  lumber 
carriage  in  the  Ottawa  Valley  and  refused  to  reestablish, 
in  April,  1914,  the  tolls  of  the  preceding  season,  they  were 
sustained  by  the  Board.  ^  The  most  explicit  ruling  is  to 
be  found  in  The  Blind  River  Board  of  Trade  vs.  The  Grand 
Trunk,  Canadian  Pacific  Railways,  Northern  Navigation 
and  Dominion  Transportation  Companies.  ^  In  this  case 
it  was  complained  that  the  companies  were  discriminating 
against  the  towns  on  the  north  shore  of  Lake  Huron  as 
compared  with  Sault  Ste.  Marie.  It  was  shown  that  Blind 
River  was  off  a  line  of  all-water  competition  that  pre- 
vailed at  Sault  Ste.  Marie.  The  Board,  declaring  that  the 
railways  could  cancel  a  low  rate  that  had  previously  ap- 
plied, "when  water  competition  becomes  less  effective, 
or  when  the  railway  thinks  it  has  become  less  effective,  or 
even  when  the  railway  no  longer  desires  to  meet  it,"  dis- 
missed the  complaint.  Thus  the  advantages  that  may  be 
potential  in  a  given  district  may  or  may  not  come  to  re- 
alization or  be  checked  at  the  discretion  of  the  railways. 
By  a  shrewd  exercise  of  discretion  the  railway  lines  may 
by  very  low  rates  discourage  water  competition,  and,  with 
its  decline,  again  exercising  discretion,  reestablish  former 
rates  upon  a  non-competitive  basis. 

The  Board  has  developed  its  ruling  so  that  as  between 
points  in  a  given  district,  even  if  there  is  competition  at 
both  points,  there  is  little  reUef  against  discriminative 
treatment.  While,  perhaps,  the  railways  cannot  elect  to 
meet  water  competition  at  one  point  and  refuse  under 
substantially  similar  conditions  to  meet  it  at  another  point, 
this  is  most  difficult  to  establish.'  Thus,  in  the  complaint 

»  17  C.R.C.  102.  ^  9/261. 

'  Cp,  "Of  course  if  the  railway  company  was  performing  a  similar  ser- 


UNJUST  DISCRIMINATION  145 

of  C.  A.  Bowlby  and  others  against  excessive  freight  rates 
on  the  Hahfax  &  South  Western  Railway  to  Medway,  the 
Board  found  that  there  was  water  competition  at  Med- 
way and  that  formerly  the  railway  met  this  competition, 
but  had  decided  not  to  make  rates  to  meet  it.  "The  only 
point  at  issue,"  the  Board  said,  "is  whether  the  fact  of 
the  railway,  having  met  water  competition  at  any  earlier 
period,  puts  the  burden  upon  it  to  meet  competition  now." 
On  the  ground  that  the  railway  had  the  privilege  of  exer- 
cising its  own  choice  in  the  matter  the  application  for  re- 
lief was  denied.  With  reference  to  the  evidence  showing 
that  a  lower  rate  basis  existed  from  Halifax  to  Liverpool, 
a  point  nine  miles  farther  distant  from  Medway,  the  Board 
held  that  "the  fact  that  it  has  met  the  competition  at 
Liverpool  does  not  place  on  it  any  obligation  to  meet  the 
competition  at  Medway  Station."  ^  In  this  instance  it 
was  complained  that  the  Liverpool  merchants  and  Med- 
way merchants  competed  in  common  territory,  so  one 
wotdd  gather  that  the  effect  of  the  judgment  would  be  to 
put  Medway  merchants  at  a  disadvantage  as  compared 
with  their  more  favored  Liverpool  competitors.  Similarly, 
in  the  complaint  of  the  Nanaimo  Board  of  Trade  against 
a  proposed  new  Canadian  Pacific  Railway  tariff  eliminat- 
ing Nanaimo  as  a  terminal  freight-rate  point,  the  Chief 
Commissioner  said,  "Nanaimo  for  many  years  has  had  the 
benefit  of  coast  terminal  rates.  This  benefit  has  been  taken 
from  it."  Admitting  inconvenience  and  sometimes  real 
hardship  in  such  rule,  he  decided  that  "if  the  railway  does 
not  choose  to  meet  the  competition,  the  Board's  whole 
right  to  interfere  with  the  rate  is  confined  to  a  case  where 
the  rate  as  charged  is  unreasonable  for  the  service  ren- 
dered." 2  Hence,  in  the  case  of  towns,  as  of  districts  as  a 
whole,  the  discretion  of  the  railway  official  appears  to  be 

vice  for  nothing  for  a  similar  or  considerable  distance,  the  Board  could 
order  that  Nanaimo  should  get  the  bene6t  of  this  69  mile  haul  for  noth- 
ing, on  the  ground  of  discrimination."  VI  J.O.R.R.  9. 
1  VI  J.O.R.R.  371.  2  Ibid.,  9. 


146  CANADIAN  RAILWAY  RATES 

fairly  complete.  The  ultimate  effect  of  this  is  to  strengthen 
the  movement  toward  the  concentration  of  trade  and  in- 
dustry in  large  centers  with  established  advantages.  Cau- 
tious entrepreneurs  will  not  locate  in  districts  where  com- 
petitive advantages  in  the  matter  of  rates  may  later  be 
withdrawn. 

Another  problem  emerges.  This  is  the  problem  of  the 
equitable  adjustment  of  fixed  costs  upon  the  different  por- 
tions of  the  railways.  This  becomes  of  greater  impor- 
tance when  it  is  recalled  that  the  long  haul  north  of  Lake 
Superior,  with  lack  of  local  traffic,  with  difficult  curves, 
and  severe  climatic  conditions,  means  that  costs  incurred 
there  must  be  provided  for  elsewhere.  It  is  also  quite  clear 
that  if  the  rate  levels  of  Eastern  Canada  are  determined 
by  the  presence  of  water  competition,  then  the  burden  of 
fixed  costs  to  that  degree  does  not  fall  there.  The  conclu- 
sion develops  that  it  must  fall  upon  Western  Canada, 
where  the  rate  levels  are  admittedly  higher  and  where 
water  competition  does  not  exist. 

It  requires  to  be  pointed  out,  however,  that  the  benefits 
of  low  rates  in  the  East  in  some  ways  is  shared  by  the  West. 
In  so  far  as  the  West  ships  out  its  surplus  commodities  to 
the  Eastern  Provinces  or  the  seaboard,  it  enjoys  the  bene- 
fit of  water-compelled  rates  from  the  head  of  the  lakes. 
Similarly,  in  so  far  as  it  imports  its  supplies  from  the 
East  these  benefits  accrue.  In  brief,  the  vast  interregional 
trade  carried  on  between  these  two  markets  is  upon  an 
equal  basis,  with  the  additional  advantage  to  the  West  of 
lowered  export  rates.  Hence  the  Board,  after  surveying 
this  situation,  declared  that  there  was  no  undue  prefer- 
ence to  the  East  and  gave  judgment  accordingly.  The 
weight  of  discrimination  is  reduced  by  these  considera- 
tions to  the  differences  in  rates  between  local  traffic  in  the 
East  and  local  traffic  in  the  West.  Or,  from  another  point 
of  view,  any  advantage  the  West  derives  from  canal  ex- 
penditure is  to  be  set  over  against  a  greater   burden  of 


UNJUST  DISCRIMINATION  147 

fixed  costs  exacted  through  high  rates  on  local  traffic. 
The  railways  are  charging  what  the  traffic  will  bear,  and 
the  only  parts  of  Canada  available  for  this  procedure  are 
the  Prairie  Provinces. 

This  inequality  between  local  rates  in  the  East  and  in 
the  West  has  been  reduced  slightly  by  the  Eastern  Rates 
decision.  The  Chief  Commissioner,  who  wrote  the  judg- 
ment said,  "I  am  aware  that  an  absolute  parity  is  im- 
practicable, but  as  conditions  become  similar,  a  reason- 
able parity  ought  to  be  obtained."  ^  It  will  be  recalled 
that  the  application  for  an  increase  in  local  rates  in  Eastern 
Canada  followed  the  granting  of  a  five  per  cent  increase 
by  the  Interstate  Commerce  Commission  to  the  United 
States  railways  operating  in  official  classification  territory. 
While  an  advance  in  rates  on  the  American  lines  may 
warrant  certain  advances  in  Eastern  Canada  rates,  the 
view  that  conditions  in  time  will  become  sufficiently  simi- 
lar to  bring  rates  substantially  to  a  parity  appears  illusive. 
The  great  element  of  dissimilarity,  the  presence  of  water- 
ways in  the  East,  is  an  abiding  factor  of  difference  not 
capable  of  change.  Other  counter-balancing  factors  may 
bring  about  an  equality  of  rates,  but  not  similarity  of 
conditions. 

A  highly  probable  effect  of  higher  rate  schedules  in  the 
West  is  that  the  development  of  manufacturing  and  dis- 
tributing centers  in  the  Prairie  Provinces  will  be  retarded. 
The  Eastern  manufacturers  have  the  advantage  over 
Western  competitors.  While  both  Eastern  and  Western 
manufacturers  enjoy  the  benefits  of  low  interregional  rates, 
to  the  former  alone  is  there  also  the  benefit  of  really 
low  tolls  in  the  local  constituency.  The  Western  Rates 
decision  buttresses  this  situational  advantage  only  by 
recognizing  the  facts  controlling  a  difficult  and  intricate 
rate  situation. 

There  remains  to  be  considered  the  broader  significance 
»  VI  J.O.R.R.  154. 


148  CANADIAN  RAILWAY  RATES 

of  these  decisions  upon  rate  regulation  and  upon  the  Board 
of  Commissioners.  In  holding  that  the  higher  rate  levels 
in  the  West  as  compared  with  the  East  is  not  unjust,  the 
Board  has  not  allayed  the  original  cause  of  irritation.  The 
grievance  is  bound  to  be  ventilated  again  in  the  future, 
and  since  the  Board  has  exhaustively  dealt  with  the  prob- 
lem and  given  a  decision  that  in  the  light  of  all  the  existing 
circumstances  can  scarcely  be  challenged,  it  would  be  a 
bootless  task  to  approach  that  body  with  hope  of  relief. 
Recourse  can  only  be  had  to  Parliament  with  hope  of  suc- 
cess, for  the  difficulties  are  such  that  they  do  not  arise 
from  a  lack  of  legal  authority  on  the  part  of  the  Board,  but 
inhere  in  the  concrete  physical  situation.  Facts,  revealing 
the  financial  difficulties  of  the  Canadian  Northern  Rail- 
way system  and  the  Grand  Trunk  Pacific,  that  have  trans- 
pired since  the  decision  was  announced,  clearly  show  that 
if  the  Board  at  that  time  had  put  rates  on  a  parity  East 
and  West,  it  would  have  hastened  the  present  railway  crisis 
in  Canada.  It  would  have  accelerated  a  condition  of  affairs 
against  which  the  whole  tenor  of  the  Board's  opinion  has 
stood  in  the  past.  Since  the  Board  has  failed  to  settle  the 
difficulty,  the  duty  will  devolve  upon  Parliament  to  make 
the  attempt.  When  this  occurs  it  may  check  the  present 
trend  to  increase  the  powers  of  the  Board  that  recent  years 
have  witnessed.  It  depends  largely  upon  the  method  of 
settlement  devised. 

It  has  been  argued  that  relief  for  the  West  will  be  found 
in  the  construction  of  the  Georgian  Bay  Canal,  which 
would  provide  a  short  route  from  the  Great  Lakes  to  tide- 
water. But  it  is  obvious  that  while  this  might  offer  com- 
pensating advantages  in  so  far  as  it  would  extend  the 
range  of  water  competition,  the  problem  of  high  local 
rates  in  the  West  would  be  aggravated.  Further,  as  a  mat- 
ter of  fact,  if  this  route  meant  a  large  diversion  of  traffic 
from  the  St.  Lawrence  route,  it  would  in  a  slightly  different 
shape  be  reproducing  the  effects  of  the  Grand  Trunk  Rail- 


UNJUST  DISCRIMINATION  149 

way  upon  that  route.  It  would  mean  that  expenditure 
upon  the  Welland  Canal  and  elsewhere  would  be  lost  ex- 
cept in  so  far  as  a  trifling  local  traffic  was  concerned.  Again, 
if  the  Georgian  Bay  Canal  deflected  a  great  deal  of  traffic 
from  the  three  transcontinental  lines  the  effect  would  be 
to  delay  the  period  when  all  of  these  lines  would  come  to 
financial  stability.  None  of  these  considerations  is  in  itself 
a  sufficient  reason  to  dismiss  lightly  the  Georgian  Bay 
Canal  scheme,  nor  perhaps  are  they  of  great  weight  when 
considered  together,  but  they  are  elements  in  the  situation 
and  must  be  reckoned  upon. 

It  is  conceivable,  though  as  yet  problematical,  that  the 
Hudson's  Bay  route,  at  present  ^  being  built  by  the  Do- 
minion Government  from  a  point  in  northern  Manitoba 
to  Port  Nelson  may  provide  a  solution.  The  road  would 
introduce  a  new  factor  into  the  competitive  situation  and 
might  thereby  cause  the  reduction  in  freight  rates  in  the 
West  to  something  nearer  the  Eastern  level,  even  though 
it  would  likely  be  burdened  by  the  necessity  of  carrying 
in  the  costs  of  operating  an  expensive  and  in  itself  an  un- 
profitable line  between  Port  Nelson  and  Le  Pas.  The  rates 
it  would  most  keenly  affect  would  be  the  export  grain 
rates  from  Saskatchewan  and  western  Manitoba  east  to  the 
head  of  the  Great  Lakes.  The  gain  would  lie  probably  not 
so  much  in  the  difference  of  railway  tolls  to  Port  Nelson 
as  in  the  gain  in  the  ocean  rate  from  Port  Nelson  to  Liver- 
pool, compared  with  the  rate  from  Fort  William  to  Mon- 
treal or  Quebec,  and  from  either  of  the  latter  points  to 
Liverpool.  But  in  that  event,  if  the  findings  of  the  Board 
be  correct,  that  the  higher  levels  of  the  West  are  neces- 
sary on  present  volume  of  traffic  to  guarantee  fair  return 
on  capital  invested  in  railways,  what  will  become  of  them.'' 
There  can  be  only  one  answer.  We  may  predict  an  era  of 
low  earnings  or  deficits.  This  position  assumes  that  the 
Hudson's  Bay  Route  will  prove  a  success.  This,  however, 
»  Canada  Year  Book  (1915),  p.  476. 


150  CANADIAN  RAILWAY  RATES 

is  not  to  be  assumed.  The  distance  from  Liverpool  to 
Port  Nelson  is  2966  miles  as  against  2647  to  Quebec.  The 
distance  from  Le  Pas,  in  northern  Manitoba,  to  Port  Nel- 
son is  424  miles.  The  distance  from  Quebec  to  Winnipeg 
is  approximately  1350  miles.  Hence,  other  things  being 
ignored,  as  a  matter  of  mileage  the  advantage  claimed  for 
the  Hudson's  Bay  Route  is  the  advantage  of  roughly  950 
miles  less  inland  carriage  against  a  sea  carriage  of  less  than 
350  miles  additional.  This  statement,  however,  ignores  the 
really  vital  consideration,  to  wit:  the  navigability  of  the 
Hudson's  Bay  part  of  the  northern  route.  There  are  grave 
possibilities  that  the  shortness  of  the  season,  the  dangers 
of  ice,  and  difficulties  of  seciu'ing  steady  shipping  service 
will  make  the  route  of  minor  importance.  Indeed,  there 
are  many  elements  to  be  considered  and  the  permanent 
factors  in  the  physical  situation  are  not  sufficiently  known 
to  forecast  the  final  adjustments. 

Happily  it  is  possible  that  another  way  out  may  appear. 
Western  levels  may  be  able  gradually  to  stand  reductions 
without  ill  effect  through  an  increasing  density  of  traffic 
in  Western  territory,  or,  in  the  event  of  the  Government 
line  to  Hudson's  Bay  compelling  reductions,  the  power  of 
the  other  railways  to  stand  the  same  in  the  West  may  have 
been  underestimated  by  the  Board.  It  is  obvious,  however, 
that  just  here  there  are  chapters  yet  to  be  written  in  Cana- 
dian railway  history. 

Several  minor  principles  grow  out  of  the  Board's  atti- 
tude toward  water  competition.  Water  competition  to  be 
recognized  must  be  efficient.  In  Plain  &  Company  vs.  The 
Canadian  Pacific  Railway,^  where  discrimination  was  al- 
leged as  between  two  points  on  the  line,  both  touching  the 
Rideau  Canal,  it  was  held  that  "where  a  railway  chooses 
to  meet  water  competition,  it  is  to  be  presumed,  unless  the 
contrary  be  established,  that  it  does  so  because  there  is 
effective  competition  in  regard  to  traffic  important  in 

1  5/208. 


UNJUST  DISCRIMINATION  151 

amount."  When  the  Canadian  Portland  Cement  Com- 
pany appHed  for  a  reduced  rate  on  coal  from  Black  Rock 
to  Marlbank,  comparisons  with  the  rate  to  Kingston  and 
Belleville  were  ofiPered,  but  it  was  shown  that  while  coal 
might  move  by  water  to  Marlbank,  yet  it  was  not  moving 
in  suflSciently  large  quantities  to  meet  the  needs  of  the 
business.  As  coal  moved  freely  to  other  points  the  com- 
parison failed.^  The  doctrine  of  the  limited  efficiency  of 
competition  is  a  variant,  another  phase  of  this  point  of 
view  that  goes  a  little  farther.  The  Dominion  Sugar  Com- 
pany located  in  western  Ontario  complained  that  the  rate 
on  sugar  to  Toronto  was  unjust  in  comparison  with  the 
rate  given  to  competitors  whose  establishments  were  lo- 
cated at  Montreal.  The  rate  from  Montreal  was  defended 
by  the  railways  on  the  ground  that  it  was  compelled  by 
water  competition.  The  Dominion  Sugar  Company  showed 
that  shipments  were  also  possible  and  actually  did  take 
place  by  means  of  water  carriage.  In  point  of  fact  it  de- 
veloped that  the  traffic  went  chiefly  by  rail.  The  Board 
refused  to  distiu-b  the  rates,  holding  that 

carriers  may  ia  their  discretion  meet  eflPective  water  competi- 
tion from  one  point  to  another  point  by  reducing  their  tolls,  and 
it  is  not  unjust  discrimination  for  them  to  charge  higher  tolls 
from  another  point  having  a  limited  efficiency  in  such  competi- 
tion to  these  points.  ^  With  varying  intensity  of  water  competi- 
tion the  railway  may  meet  it  in  a  varying  degree.* 

More  important  is  the  recognition  that  the  intermittent 
character  of  waterway  competition  must  be  recognized. 
The  enunciation  of  this  principle  grew  out  of  a  rehearing 
of  the  Sugar  Case,  just  discussed.*  On  this  occasion  the 
applicants  showed  that  during  the  winter  season  of  the 
year  there  really  was  no  effective  water  competition  between 
Montreal  and  Toronto.  On  that  basis  they  alleged  unjust 
discrimination  during  that  portion  of  the  year.  The  Board 
accepted  this  pleading,  declaring  that  "  to  some  extent  the 

1  5/232.     2  17  C.R.C.  231.     »  VI  J.O.R.R.  370.     *  17  C.R.C.  240.    . 


152  CANADIAN  RAILWAY  RATES 

water-compelled  rate  should  fluctuate  with  its  controlling 
rate."  In  other  words,  a,  carrier  by  rail  may  be  justified 
in  reducing  tolls  from  one  place  to  another  to  meet  ef- 
fective water  competition  between  those  points,  notwith- 
standing that  the  lowered  toll  appears  discriminatory  as 
against  a  third  point  which  is  not  affected  by  such  compe- 
tition and  which  is  therefore  subject  to  higher  tolls,  but, 
a  continuance  of  the  competitive  toll,  after  the  water  com- 
petition ceases  or  is  suspended  (e.g.,  in  winter),  constitutes 
unjust  discrimination  against  such  a  third  point.  Logi- 
cally the  holding  would  mean  a  vast  readjustment  of 
tolls  every  spring  and  fall  in  Eastern  Canada;  the  railways, 
however,  prefer  to  give  an  averaged  lower  rate  on  traffic 
for  the  year  than  to  follow  the  other  procedure. 

The  suspension  of  active  water  competition  may  arise 
from  causes  other  than  the  recurrence  of  winter.  Follow- 
ing a  breakdown  of  active  water  competition  via  the 
Panama  Canal  the  Canadian  railroads  in  February,  1917, 
filed  a  tariff  with  various  increases  on  the  movement  to  the 
Pacific  Coast  of  Canada.  The  tariff  in  question  affected 
a  large  list  of  commodities.  It  was  shown  that  previously, 
in  December,  1915,  the  Canadian  roads  had  reduced  rates 
to  the  coast  to  meet  this  water  competition.  In  both  the 
reduction  and  the  proposed  advance  the  Canadian  lines 
followed  the  lead  of  the  American  railroads,  both  the  re- 
duction and  the  advance  having  been  sustained  by  the 
Interstate  Commerce  Commission.^  The  Canadian  Board 
summarily  dismissed  the  complaints  of  shippers  against 
the  proposed  advance  by  holding  that  a  'prima  facie  case 
for  suspension  of  the  tariff  had  not  been  made  out.  "The 
situation  turns,"  it  said,  "on  the  question  of  water  com- 
petition, which  the  Canadian  railways  met  in  a  measure 
when  the  competition  was  more  effective  and  which  they 
now  meet  in  a  less  degree  when  the  same  competition  is 
less  effective.  This  is  not  contrary  to  the  Railway  Act."  ^ 
1  32  I.C.C.  611;  40  I.C.C.  35.  «  VI  J.O.R.R.  501. 


UNJUST  DISCRIMINATION  153 

On  the  other  hand,  while  water  competition  must  be 
efficient  to  be  effective,  as  an  element  in  a  rate  situation 
it  need  not  be  actually  in  existence.  Potential  competi- 
tion by  water  will  justify  a  rate  which  would  otherwise 
be  adjudged  discriminative.  The  position  of  Winchester  ^ 
on  the  Canadian  Pacific  Railway,  seventeen  or  eighteen 
miles  inland  from  the  Grand  Trunk  Railway  at  Cornwall 
on  the  St.  Lawrence,  may  be  cited.  Winchester  was  taken 
as  an  illustration  by  the  Board  and  the  conclusion  arrived 
at  was:  — 

Business  could  not  very  well  be  worked  up  along  the  line  of 
the  Canadian  Pacific  should  a  higher  rate  be  charged  by  that 
company  than  that  forced  on  the  Grand  Trunk  by  water  com- 
petition at  Cornwall,  where  water  competition  either  real  or 
potential,  certainly  exists. 

The  railways,  the  Board  said,  would  be  justified  in  adopt- 
ing rates  to  Winchester  and  similar  points  which  would 
"permit  traffic  to  move  and  enable  the  railway  to  earn 
something  over  and  above  operating  costs."  However,  "  in 
order  to  be  entertained  as  a  justification  of  a  lower  rate 
basis  the  effect  of  water  competition  must  be  discernible."  ^ 

In  the  British  Columbia  Interior  Rates  Case,  where  the 
Pacific  Coast  jobbers  appealed  against  low  rates  on  East- 
ern traffic  to  interior  points,  it  was  held  that  these  were 
justified :  — 

The  railway  company  is  allowed  to  meet  competition  at  coast 
points,  and  I  think  that  it  should  be  equally  allowed  to  meet  the 
effect  of  that  competition  upon  interior  points  to  a  reasonable 
extent.' 

Naturally  it  follows  that,  where  water  competition  has 
declined  in  importance,  rates  may  be  advanced  without 
incurring  the  presumption  of  unreasonableness.  This 
position  is  clearly  developed  in  the  holding  in  the  case  of 
the  Dominion  Millers'  complaint  against  an  increase  of 

»  FUe  18755,  Judgment,  pp.  18-19.      «  VI  J.O.R.R.  491.      »  3/136.  . 


154  CANADIAN  RAILWAY  RATES 

rates  on  flour  to  the  Maritime  Provinces.  It  was  shown 
that  competitive  rates  had  been  in  force,  based  upon  the 
New  York  rate  to  Boston  plus  the  vessel  rate,  port  charges, 
and  marine  insurance,  but  that  competition  by  this  route 
was  declining.  The  Board  said :  — 

If  competition  forces  the  rate  of  a  railway  below  its  normal 
basis,  it  follows  that  when  the  competition  is  less  effective  the 
railway  may  bring  its  rates  up  more  closely  to  its  normal  basis.  ^ 

The  trend  of  these  decisions  is  in  sympathy  with  the 
Board's  main  position  upon  water-compelled  rates,  and 
their  presentation  completes  the  review  of  the  Board's 
attitude  to  this  factor  in  the  determination  of  cases  of 
unjust  discrimination. 

§  3.  It  is  easy  in  focusing  attention  upon  the  main  ele- 
ments of  a  situation  to  lose  sight  of  those  of  lesser  impor- 
tance. In  the  matter  of  geographical  location,  while  the 
presence  of  water  competition  is  easily  the  most  striking 
advantage  and  tends  to  overshadow  other  elements,  the 
competition  of  carriers  must  be  recognized,  for  it  has  pro- 
duced important  modifications  in  the  general  rate  struc- 
ture of  Canada.  This  is  particularly  true  with  respect  to 
the  Lake  Erie  frontier,  where  the  Michigan  Central  and 
Wabash  lines  come  into  contact  with  the  Canadian  car- 
riers. The  attitude  of  the  Board  to  problems  arising  out 
of  the  competition  of  carriers  is  in  accord  with  the  posi- 
tion assumed  to  water  competition.  The  competition  of  a 
rival  carrier  at  a  given  point  has  been  held  sufficient  cause 
for  a  discrimination  in  rates.  A  couple  of  statements  may 
be  quoted  in  addition  to  those  already  given  in  the  case  of 
water  competition  as  typical  of  the  Board's  attitude.  In 
the  Pressed  Brick  Case,^  the  rate  from  Bradford,  Penn- 
sylvania, to  Detroit  was  alleged  to  be  discriminatory  as 
compared  with  the  rate  to  Windsor  just  across  the  river 
on  the  Canadian  side.  But  the  Board  refused  relief:  — 
»  7/194.  2  8/49. 


UNJUST  DISCRIMINATION  155 

The  rate'  from  the  Ohio  fields  fixes  the  maximum  which  brick 
from  the  Pemisylvania  fields  can  pay.  It  holds  down  the  Penn- 
sylvania-Detroit rate  below  the  point  which  it  might  fairly  be 
expected  to  pay  on  mileage.  The  $1.60  rate  being  concerned  with 
the  condition  of  market  competition  at  Detroit,  which  does  not 
exist  at  Windsor,  therefore  does  not  afford  a  measure  of  the 
Windsor  rate.^ 

Similarly  in  connection  with  the  complaint  of  the  Fred- 
ericton  Board  of  Trade,  claiming  discrimination  in  favor 
of  St.  John,  the  Board  remarked  that  "the  existence  of 
competition  is  one  factor  creating  dissimilar  circumstances 
and  conditions." 2  At  first  glance  it  is  difficult  to  reconcile 
these  holdings  with  that  in  The  Aylmer  Condensed  Milk 
Company  vs.  The  American  Express  Company  with  respect 
to  tolls  on  cream  from  Springfield  to  Toronto.  The  facts 
are  stated  in  the  judgment:  — 

The  situation  is  that  the  American  Express  Company  gives 
the  reduced  rate  of  20  cents  for  fiu-therance  from  Brownsville. 
Brownsville  is  51  miles  east  of  Springfield.  BrownsvUle  is  an 
exclusive  office  of  the  American  Express  Company.  Apparently 
the  rate  from  Brownsville  for  furtherance  has  been  put  in  by 
the  American  Express  Company  in  competition  with  the  one- 
company  rate  of  the  Canadian  Express  for  contiguous  stations 
on  the  Grand  Trunk.  While  such  treatment  is  given  at  Browns- 
ville it  is  not  extended  to  Springfield.  The  granting  of  the  20 
cent  rate  for  furtherance  to  Brownsville  is  an  outcome  of  mar- 
ket competition.  While  the  American  Express  Company  may 
reduce  rates  on  this  account  it  must  at  the  same  time  meet  any 
allegation  of  discrimination  as  to  traffic  received  under  substan- 
tially similar  circumstances.  It  has  not  been  established  that  the 
traffic  received  at  Springfield  52  mUes  distant  is  received  under 
substantially  dissimilar  circumstances.' 

It  would  appear  that  the  Board's  holding  here  rests  on 
the  basis  that  competition  was  as  much  a  factor  at  Browns- 
ville as  at  Springfield,  and  that,  therefore,  the  American 

1  Cp.  Wylie  Milling  Co.  vs.  C.P.R.,  7/252;  Guest  Fish  Co.  re  Express 
rates  on  fish,  10/198. 

2  10/261.  8  17  C.R.C.  100. 


156  CANADIAN  RAILWAY  RATES 

Express  Company,  choosing  to  meet  competition  at 
Brownsville,  must  choose  also  to  meet  it  at  Springfield. 
This  is  implied  in  the  statement  that  the  traflfic  received 
at  the  latter  point  is  not  received  mider  "substantially 
dissimilar  circumstances."  The  case  comes  very  close  to 
the  complaint  from  the  merchants  at  Medway,  of  dis- 
crimination as  compared  with  Liverpool,  though  in  that 
instance  it  was  stated  that  the  Liverpool  Station  was  fa- 
vorably situated  in  the  business  section  of  Liverpool  and 
was  "therefore  in  a  better  position  to  meet  competition."  ^ 
On  the  other  hand,  we  have  the  statement  here  that  Browns- 
ville is  "an  exclusive  office  of  the  American  Express  Com- 
pany," and  it  might  be  presumed  that  this  would  simi- 
larly put  it  "in  a  better  position  to  meet  competition." 
In  the  matter  of  charging  lower  storage  tolls  at  Fort  Wil- 
liam for  goods  to  be  forwarded  than  for  local  goods,  the 
Board  granted  the  contention  of  the  railways  that  tolls 
which  otherwise  of  a  necessity  might  be  charged  on  a 
parity  might  differ  one  from  another  as  a  result  of  com- 
petitive conditions.^  Here  the  railways  pleaded  that  the 
lower  forwarding  storage  rate  was  due  to  the  competition 
of  the  railways  at  American  ports. 

The  recognition  by  the  Board  of  the  influence  of  com- 
petition either  by  water  or  by  rail  indirectly  settles  most  of 
the  problems  of  competing  distributive  centers.  As,  how- 
ever, in  certain  instances  the  effect  of  the  Board's  policy 
in  this  direction  has  been  modified  by  considerations  aris- 
ing out  of  the  problem  of  the  long  and  short  haul,  the 
whole  question,  may  be  conveniently  treated  when  that 
topic  is  dealt  with. 

§  4.  Cases  have  come  before  the  Board  where  the  charge 
of  discrimination  has  been  supported  on  the  blunt  plea 
that  the  Board  should  equalize  rates  to  certain  markets 
served  by  competing  producers.  To  this  form  of  attack 
upon  the  reasonableness  of  a  rate  the  Board  has  given 
1  VI  J.O.R.R.  370.  *  18  C.R.C.  406. 


UNJUST  DISCRIMINATION  157 

scant  respect.  Probably  the  baldest  form  in  which  it  has 
been  placed  before  it  refers  to  the  rate  on  sugar  from  Van- 
couver to  Manitoba  cities.  By  an  order  of  the  Board  in 
June,  1908,  the  rate  on  sugar  between  Montreal  and  Winni- 
peg was  fixed  at  71  cents,  Portage  La  Prairie  75  cents,  and 
Brandon  82  cents  per  hundred  pounds.  Wallaceburg,  in 
western  Ontario,  via  the  Canadian  roads,  had  the  same 
rate.  In  1910  the  Pere  Marquette  Railway  issued  a  tariff 
quoting  a  rate  of  60  cents  to  Winnipeg,  68  cents  to  Por- 
tage La  Prairie,  and  71  cents  to  Brandon.  Thereupon  the 
British  Columbia  Sugar  Refining  Company  complained 
of  the  reduction  and  appealed  for  relief.  The  first  appli- 
cation was  couched  in  the  following  terms:  "In  order  to 
meet  this  competition  of  alien  railroad,  we  ask  for  a  60- 
cent  rate  from  Vancouver  to  Winnipeg  and  proportion- 
ately reduced  rates  to  Portage  La  Prairie  and  Brandon." 
To  this  the  Board  replied:  — 

In  the  peculiar  form  of  competition  here  presented,  which 
may  be  called  either  market  or  trade  competition,  we  find  the 
products  of  refineries  located  in  different  portions  of  Canada  in 
competition.  Here  again  it  is  in  the  discretion  of  the  railway 
whether  it  shall  so  adjust  its  rates  as  to  equalize  the  effects  of 
such  competition.  This  is  not  simply  a  question  of  analogy  from 
what  has  been  decided  in  regard  to  other  forms  of  competition; 
it  is  a  question  of  authority  as  well.^ 

The  Imperial  Rice  Milling  Company,  of  Vancouver, 
applied  for  a  reduction  in  the  rates  on  rice  to  Winnipeg  in 
order  to  put  it  on  an  even  basis  with  the  Montreal  rice 
millers.^  In  its  pleading  it  alleged  that  the  rice  brought 
into  Montreal  from  Rangoon  was  a  lower-priced  article 
than  the  Japanese  product,  and  it  was  therefore  at  a  dis- 
advantage in  the  point  of  trade  competition.  The  Board 
declined  to  interfere,  ruling  that  it  was  not  its  function  to 
equalize  costs  of  production.  Similarly,  the  application 
of  the  Continental  Oil  Company,  Limited,  and  other  oil 
1  5/279.  2  8/270. 


158  CANADIAN  RAILWAY  RATES 

companies  cf  Winnipeg,^  drawing  their  supplies  from  in- 
dependent plants  in  Kansas  and  elsewhere,  for  a  reduction 
in  the  rates  on  oil  and  oil  products  from  Duluth,  St.  Paul, 
and  Minneapolis,  to  Winnipeg,  was  essentially  an  effort 
to  equalize  conditions  with  reference  to  the  oil  shippers  in 
western  Ontario.  This  was  denied,  though  the  case  was 
disposed  of  on  a  minor  point. 

In  The  Canadian  China  Clay  Company  vs.  The  Cana- 
dian Northern  Railway,  et  al.,  the  clay  company  sought 
relief  in  lower  rates  to  mitigate  the  severity  of  the  compe- 
tition of  the  English  companies.  The  Board  said:  — 

It  has  been  held  time  and  again  that  rate  regulating  commis- 
sions have  no  right  whatever  to  attempt  to  equalize  geographic, 
climatic  or  economic  conditions. ^ 

Similarly,  in  refusing  a  request  for  a  lower  rate  from  Clover 
Bar  to  Edmonton  on  sand,  in  order  that  the  applicant 
company  might  compete  with  sand  being  shipped  in  from 
Fort  Saskatchewan,  the  Board  remarked :  — 

It  may  be  that  no  business  can  move  under  this  rate  and  that 
the  railway  company  is  guilty  of  an  error  of  judgment  in  not 
putting  in  a  lower  rate  owing  to  the  special  competitive  features 
at  Edmonton.  This,  however,  has  been  repeatedly  held  to  be  a 
question  for  the  railway  company  itself  to  decide.^ 

Quite  properly  the  Board  will  not  permit  shippers  to  se- 
cure in  a  roundabout  way  what  it  refuses  to  grant  to  them 
in  a  direct  way.  The  complaint  of  Hay  &  Company,  Lim- 
ited, Woodstock,  and  the  J.  H.  Still  Manufacturing  Com- 
pany, Limited,  St.  Thomas,  may  be  cited  in  illustration. 
These  firms  were  manufacturers  of  veneering  and  handles. 
They  purchased  their  logs  in  small  lots  from  farmers.  The 
complaint  they  made  was  that  they  were  unable  to  load  a 
36-foot  flat  car  with  logs  to  a  minimum  of  50,000  pounds 
and  they  applied  for  a  reduction  to  35,000  or  at  least  40,- 
000  pounds.   It  was  claimed  by  Mr.  Hay  that  it  was  not 

»  7/212.         «  10/327.  Cp.  VI  J.O.R.R.  267;  VI  J.O.R.R.  286. 
3  17  C.R.C.  95. 


UNJUST  DISCRIMINATION  159 

practicable,  when  shipping  logs  from  western  Ontario 
points,  to  use  a  steam  log-loader  as  the  quantities  were  not 
large  enough.  It  was  pointed  out  that  where  logs  ar^s 
shipped  from  the  timber  limits  in  large  quantities  it  is  cus* 
tomary  to  utilize  steam  log-loaders  or  cranes  and  thus  load 
much  more  heavily.  After  a  careful  survey  of  decisions  of 
the  Interstate  Commerce  Commission  the  Board  ruled  that 
it  would  not  be  justified  in  directing  a  reduction  of  the 
minimum  weight  in  general  because  in  a  particular  in- 
stance it  was  slightly  in  excess  of  the  average  loading 
capacity.  "The  handicap  complained  of,"  it  said,  "is 
part  of  the  cost  of  production  .  .  .  the  railway  cannot  with 
propriety  be  asked  to  equalize  this  handicap."  ^ 

There  are  no  data  to  determine  clearly  whether  the 
Board  would  carry  its  attitude  in  this  respect  to  the  point 
of  completely  shutting  out  possibly  effective  competition. 
A  case  in  which  this  question  has  been  squarely  raised  has 
not  come  before  it.  What  evidence  there  is  points  in  that 
direction.  Certainly  the  result  of  the  decisions  affecting 
the  carriage  of  oil  is  to  leave  the  Imperial  Oil  Company  at 
Sarnia,  the  Standard  Oil  Company's  Canadian  branch,  in 
the  strongest  shipping  position.  This  in  itself  is  not  an 
evidence  of  design  on  the  part  of  the  Board,  it  need  scarcely 
be  said,  but  appears  to  be  the  natural  result  of  the  acumen 
of  that  company  in  selecting  its  location,  combined  with 
the  natural  working-out  of  the  principles  upon  which  the 
Board  has  based  its  decisions.  To  disentangle  the  general 
fact  from  this  particular  instance,  a  logical  application 
of  the  principles  of  the  Board  results  in  certain  points  hav- 
ing as  it  were  a  monopoly  position  in  so  far  as  transpor- 
tation is  concerned.  The  Board  will  not  deprive  them  of 
this  monopoly  element  even  though  the  advantages  that 
accrue  to  location  there  are  so  great  that  they  might  easily 
be  the  factor  that  would  place  a  firm  in  the  dominant  posi- 
tion in  respect  to  certain  markets. 

»  VI  J.O.R.R.  474  ff. 


160  CANADIAN  RAILWAY  RATES 

Moreover,  a  railroad  may  not  arbitrarily  advance  rates 
to  protect  a  market  from  competitors  who  may  be  more 
favorably  located.  This  may  be  illustrated  by  the  Gas 
House  Coke  Case.^  Gas  house  coke  is  manufactured  from 
bituminous  coal,  upon  which  there  is  a  duty  of  fifty-three 
cents  per  ton  while  gas  house  coke  itseK  enters  free.  The 
rate  on  coal  from  Suspension  Bridge  to  Toronto  is  sixty 
cents  per  ton.  Hence  the  Consumers'  Gas  Company  asked 
the  railways  to  give  it  a  lower  rate  out  of  Toronto  to  over- 
come this  disadvantage.  Instead  of  complying  with  this 
request  the  railway  increased  the  Buffalo-Hamilton  rate  on 
gas  house  coke  by  thirty  cents  per  ton,  and  the  case  came 
before  the  Board  on  the  complaint  of  a  Hamilton  dealer. 
After  hearing  the  Board  held  that  there  was  nothing  to  jus- 
tify the  increase  and  that  the  advance  must  be  canceled. 

The  same  position  is  taken  in  The  Canadian  Oil  Com- 
panies, Limited,  vs.  The  Grand  Trunk  Company,  et  al., 
where  the  rate  on  petroleum  from  Ohio  and  Pennsylvania 
points  was  in  dispute.  The  Board  in  this  case  said  that  if 
the  railroads  were  trying  to  protect  the  Canadian  refiners 
against  the  importation  of  crude  oil  from  the  United  States 
the  object  was  entirely  illegal:  — 

Railway  companies  are  entitled  to  enjoy  fair  and  remunerative 
rates,  but  they  have  no  right  to  attempt  any  rate  adjustment 
out  of  line  with  reasonable  tolls,  with  the  view  of  protecting  or 
assisting  any  one  industry,  or  one  section  of  the  public.^ 

A  later  application  of  the  Consumers'  Gas  Company 
shows  the  application  of  this  principle  in  the  opposite  di- 
rection.^ When  the  advance  in  rates  from  Buffalo  was  dis- 
allowed it  filed  a  complaint  alleging  discrimination.  It 
was  then  shown  that,  over  and  above  any  advantage  aris- 
ing through  the  tariff,  the  Buffalo  Gas  Company  were 
getting  lower  rates  for  their  coke  out  of  Buffalo  than  the 
Toronto  company  out  of  that  city.  The  Board  ordered  the 
»  6/367.  2  7/199.  3  8/265. 


UNJUST  DISCRIMINATION  IGl 

reduction  of  the  latter  rates  to  the  same  level  on  the  basis 
of  mileage. 

The  net  result  of  these  cases  is  to  show  that  if  a  railway 
voluntarily  establishes  a  low  rate  from  one  point  and  dis- 
crimination is  shown,  it  will  only  be  permitted  to  remove 
that  discrimination  by  a  similar  reduction  for  the  point 
discriminated  against.  Even  if  there  is  a  contractual 
basis  to  a  rate  the  Board  is  not  precluded  from  seeing  to 
the  maintenance  of  a  reasonable  rate.^  "Adequacy  of 
consideration  is  not  such  a  justification  for  the  continu- 
ance of  a  given  rate  basis  as  to  oust  the  propriety  of  that 
rate  basis  being  made  reasonable  no  matter  by  whom  such 
application  is  made."  ^  There  is  no  obligation,  however,  on 
the  railways  to  make  developmental  rates  however  advan- 
tageous they  might  be  on  the  grounds  of  public  policy. 

§  5.  It  is  difficult  to  show  consistency  between  the 
views  just  dealt  with  and  some  of  the  Board's  remarks  on 
export  rates.  This  may  be  due  to  the  fact  that  the  condi- 
tions under  which  the  bulk  of  the  export  trade  is  carried 
on  have  not  led  to  any  considerable  amount  of  rate  litiga- 
tion, and  therefore  the  Board's  position  has  not  been  fully 
developed  and  received  definitive  form.  The  great  bulk 
of  Canada's  exports  finds  its  way  to  the  world's  markets 
via  Montreal  and  the  St.  Lawrence  route.  Instead  of  sev- 
eral actively  competing  routes  there  is  practically  only 
one  by  which  traffic  moves.  As  a  result  the  Board  has  been 
largely  relieved  of  passing  upon  cases  involving  export 
rates.  The  issue  was  raised,  however,  in  the  Elder,  Demp- 
ster &  Company's  Case,  when  export  rates  were  refused 
to  commodities  moving  to  Vancouver  via  the  Isthmus  of 
Panama.  The  discrimination  in  rates  in  this  instance  was 
defended  on  the  exigencies  of  competition.  The  Board  de- 
clared: — 

The  products  of  Canada  that  move  under  the  export  rates 
come  into  competition  in  British  and  foreign  markets  with  those 
»  4/252.  2  VI  J.O.R.R.  394. 


162  CANADIAN  RAILWAY  RATES 

of  many  other  countries,  and  to  meet  such  competition  and  per- 
mit reaching  these  markets,  the  railway  companies  make  these 
reductions  in  rates  to  the  seaboard.^ 

Other  phases  of  this  case  are  not  of  interest  here.  The 
point  to  be  observed  is  that  in  the  above  statement  export 
rates  are  given  justification  on  the  ground  that  they  en- 
able Canadian  products  to  reach  certain  markets.  This  is 
hardly  consistent  with  the  view  that  a  railway  may  not 
attempt  rate  adjustments  of  an  exceptional  character  with 
a  view  to  protecting  or  assisting  an  industry.  From  the 
point  of  view  of  economics  there  is  little  difference  be- 
tween international  trade  and  interregional  trade.  If  there 
is  justification  in  quoting  a  low  rate  in  one  instance  to 
enable  goods  to  reach  a  certain  market  it  should  be  equally 
valid  in  the  other  case.  No  fault  is  being  found  with  the 
end  aimed  at  in  this  decision,  nor  with  the  general  proposi- 
tion that  a  lower  rate  may  reasonably  be  granted  on  ex- 
port goods,  but  exception  is  taken  to  the  justification  here 
employed  in  view  of  other  utterances  of  the  Board.  In  the 
China  Clay  Case  there  is  a  hint  of  firmer  ground  in  the 
statement  that  "if  the  Board  were  to  adopt  the  principle 
that  the  import  rail  rate,  practically  a  proportion  of  the 
through  rate,  could  never  be  lower  than  the  local  rate,  a 
serious  dislocation  of  business  would  result."  ^  There  can 
be  no  doubt,  in  defending  lower  rates  for  this  class  of  traf- 
fic, that  the  suggestion  that  import  rates,  or  for  that  mat- 
ter export  rates,  are  to  be  viewed  as  proportions  of  a 
through  rate,  is  a  more  solid  position  to  occupy. 

It  is  to  be  remarked,  however,  that  in  cases  where  the 
issue  of  entrance  to  markets  has  arisen,  the  applications 
have  been  to  obtain  admission  to  a  market  by  a  reduced 
rate  rather  than  cases  where  such  a  reduced  rate  has  been 
under  attack  as  discriminative.  The  Board  has  taken  the 
position  that  it  has  no  authority  to  order  such  a  reduced 
rate  and  has  applied  this  ruling  to  export  rates.  The  appli- 
1  5/281.  2  10/327. 


UNJUST  DISCRIMINATION  1G3 

cation  of  the  Graham  Company,  Limited,  of  Belleville, 
for  a  change  in  classification  of  desiccated  vegetables  from 
fourth  class  to  fifth  class  was  denied  because  "no  obliga- 
tion is  imposed  by  the  Railway  Act  to  give  an  export  rate 
basis  to  a  port  which  is  lower  than  the  domestic  rate  basis 
to  the  same  port."  ^  The  general  attitude  of  the  Board  to 
rates  on  industry  will  be  discussed  more  fully  in  a  later 
chapter. 

§  6.  Certain  differences  in  the  nature  of  the  traffic  have 
been  held  to  justify  different  rates.  With  a  few  exceptions 
these  differences  have  been  presumed  to  mean  a  difference 
in  the  cost  of  handling  the  traffic,  so  that  cases  considered 
under  this  section  illustrate  chiefly  the  use  of  the  cost-of- 
service  principle  by  the  Board  in  cases  where  discrim- 
ination has  been  charged.  As  pointed  out,  however,  in  con- 
nection with  rates  held  reasonable  in  themselves,  the  cost 
of  service  which  is  the  basis  of  the  claim  is  not  actually 
proved,  but  presumed  or  inferred  by  comparison  with 
rates  where  the  particular  feature  upon  which  the  case 
turns  is  present  or  absent.  The  more  important  of  these 
cost  factors  that  come  into  play  here  relate  to  the  condi- 
tions under  which  branch-line  traffic,  joint  traffic,  and 
traffic  involving  a  long  or  short  haul  are  carried  on. 

The  principle  that  branch-line  freight  rates  might  be 
levied  on  a  higher  basis  than  main-line  freight  rates  was 
enunciated  in  one  of  the  earliest  cases  to  come  before  the 
Board.  In  1904  the  Almonte  Knitting  Company  com- 
plained of  the  rate  on  coal  from  the  western  Ontario  gate- 
ways to  Almonte.^  The  rate  to  Ottawa  and  Carleton 
Junction  from  the  Niagara  frontier  was  $2  a  ton.  The  rate 
to  Almonte  via  a  lateral  line  out  of  Carleton  Junction  was 
$2.40  a  ton.  Ottawa  is  twenty-eight  miles  from  the  Junc- 
tion and  Almonte  is  seven  miles.  The  Board  held  that  be- 
cause Almonte  was  on  a  branch  line  that  fact  warranted 
a  higher  rate,  but  not  disproportionately  or  unreasonably 
»  VI  J.O.RR.  265.  2  1/71. 


164  CANADIAN  RAILWAY  RATES 

higher.  As  the  arbitrary  rate  on  tenth-class  traffic,  to 
which  class  coal  belongs,  was  only  twenty  cents  per  ton 
above  the  rate  to  the  Junction,  this  was  taken  as  the  meas- 
ure of  reasonableness  and  the  coal  rate  to  Almonte  was 
reduced  from  $2.40  to  $2.20  per  ton. 

In  the  Tan  Bark  Case  ^  this  principle  was  confirmed  and 
elaborated.  In  this  instance  the  rate  on  tan  bark  from 
Sprucedale  to  Berlin,  Ontario,  was  ten  cents  per  hundred 
pounds,  from  Sundridge  eight  cents  per  hundred.  Spruce- 
dale  is  on  a  line  eleven  miles  west  of  Scotia  Junction  and 
is  two  hundred  and  two  miles  distant  from  Berlin.  Sun- 
dridge is  two  hundred  and  twelve  miles  from  Berlin, 
twenty-one  miles  north  of  Scotia  Junction.  The  Board 
took  the  position  that  the  location  of  Sprucedale  on  what 
had  formerly  been  an  independent  line  with  light  trafl&c 
justified  a  higher  toll  than  that  paid  on  the  other  line,  a 
branch  running  from  Toronto  north  to  North  Bay.  More 
important  than  the  decision  for  our  purpose  is  the  reason- 
ing by  which  it  was  justified:  — 

WhUe  not  holding  that  the  entire  cost  of  the  upkeep  of  a  par- 
ticular branch  line,  division  or  other  portion  of  a  railway  must 
in  every  case  come  from  the  receipts  of  such  portion,  it  must  at 
the  same  time  be  recognized  that  each  ton  or  passenger  moving 
over  such  portion,  must,  if  the  traffic  is  fight,  contribute  a  pro- 
portionately higher  amoimt  per  unit  to  such  upkeep  than  in 
the  case  of  a  portion  of  liae  where  the  traffic  density  is  greater.^ 

The  relationship  of  branch-line  to  main-line  traflSc  is  a 
problem  of  admitted  intricacy,  and  in  this  instance  was 
the  occasion  of  a  notable  dissenting  opinion.  Agreeing 
with  the  recommendation  of  the  Chief  TraSic  Officer,  who 
reported  that  he  was  unable  to  see  any  exceptional  condi- 
tions to  justify  a  higher  rate  from  Sprucedale,  Mr.  Com- 

»  4/268. 

^  Cp.  "Amherstburg  has  a  branch  line  movement  from  Essex;  and 
might,  if  any  difference  were  justified,  be  expected  to  be  on  a  higher  basis." 
VI  J.O.R.R.  419. 


UNJUST  DISCRIMINATION  165 

missioner  Mills  challenged  the  presumption  that  branch 
lines  do  not  make  a  reasonable  return  to  the  company :  — 

Is  it  not  a  fact  that  the  capital  invested  in  branch  lines  is  gen- 
erally much  less  per  mile  than  that  invested  in  the  main  line 
—  less  expensive  bridges,  comparatively  inferior  roadbeds  with 
sharper  curves  made  to  save  expense,  lighter  rails,  less  expensive 
stations,  lighter  engines,  and  less  valuable  passenger  cars?  Is  it 
not  also  a  fact  that  the  service  on  branch  lines  is  nearly  always 
less  frequent,  less  regular  and  worth  less  than  that  on  the  main 
line;  and  without  such  feeders  the  profits  on  main  lines  would 
be  greatly  reduced?  ^ 

The  issue  of  fact  which  the  dissenting  opinion  raised 
has  never  been  satisfactorily  investigated  by  the  Board, 
nor  has  it  defined  in  any  clear  way  what  constitutes  a  main 
line  as  distinguished  from  a  branch  line.  In  the  case  just 
considered  Sundridge  lies  on  a  line  familiarly  known  as  the 
North  Bay  branch  of  the  Grand  Trunk  and  runs  north 
and  south,  while  Sprucedale  is  on  a  line  connecting  Geor- 
gian Bay  grain  ports  with  Montreal.  On  the  map  the  east 
and  west  line  might  reasonably  be  considered  a  main  line. 
The  logic  of  the  case  seems  to  be  that  volume  of  traffic 
determines  whether  a  line  is  to  be  deemed  "main"  or 
"branch."  In  the  absence  of  careful  investigation  on  the 
part  of  the  Board  it  must  be  confessed  that  its  position 
opens  the  door  to  a  possibility  of  tolls  grossly  discrimina- 
tive in  fact  if  not  in  law.  In  this  instance  a  haul  of  about 
eleven  miles  on  the  "branch"  line  was  not  only  held  not 
equivalent  to  a  haul  of  twenty-one  miles  on  the  "main" 
line,  but  was  held  to  justify  a  ton-mile  rate  approximately 
thirty-one  per  cent  greater  for  the  whole  haul  of  over  two 
hundred  miles. 

The  decision,  however,  is  in  keeping  with  what  has  been 
the  general  attitude  of  the  Board  to  geographical  advan- 
tage. From  this  viewpoint  it  differs  only  from  the  Board's 
holdings  in  respect  to  water  and  rail  competition  in  that 

*  4/270. 


166  CANADIAN  RAILWAY  RATES 

the  decision  rests  upon  a  putative  higher  cost  of  service 
rather  than  upon  commercial  considerations.  The  general 
ejQfect  is  the  same  —  to  centralize  traffic  along  the  main 
arteries  and  retard  industrial  enterprise  elsewhere. 

Recent  decisions,  however,  narrow  the  application  of  the 
principle  considerably  if,  indeed,  they  do  not  traverse  it  to 
some  extent.  While  in  the  Tan  Bark  Case,  as  we  have  seen, 
the  Board  expressed  the  opinion  that  if  traffic  were  light 
the  rate  might  be  higher  than  where  the  traffic  density  was 
greater,  in  The  Two  Creek  Grain  Growers'  Association  vs. 
The  Canadian  Pacific  Railway  this  plea  was  not  allowed. 
This  association  complained  that  while  Elkhorn  on  the 
main  line  of  the  Canadian  Pacific  was  one  hundred  and 
ninety-eight  miles  from  Winnipeg  the  rate  was  only  fifty- 
four  cents,  whereas  from  Two  Creeks,  one  hundred  and 
ninety-four  miles  distant,  in  the  same  mileage  group,  the 
rate  was  fifty-seven  cents.  The  railway  contended  that 
the  density  of  traffic  was  much  greater  from  Elkhorn,  on 
the  main  line;  in  fact  that  the  tonnage  out  of  Two  Creeks 
was  insignificant.  Two  Creeks  was  on  a  branch  13.4  miles 
off  the  main  line,  the  remainder  of  the  distance  being  com- 
mon to  both  points.  The  Board  replied  that  the  perti- 
nency of  this  contention  (i.e.,  density  of  traffic)  was  not 
apparent  when  it  was  considered  that  what  was  involved 
was  a  general  mileage  scale.  On  this  basis  it  ruled:  — 

Difference  in  density  of  traffic  as  between  main  and  branch 
lines  does  not  affect  the  application  of  a  standard  tariff,  there- 
fore, all  points  whether  on  main  or  branch  line,  within  the  same 
mileage  group  should  be  given  the  same  toll,  and  it  is  unjust  dis- 
crimination to  make  a  different  toll  against  one  point  in  the 
group.  ^ 

It  is  true  that  in  this  case  the  Board  compared  the  rate 
to  other  points  w^hich  revealed  the  fact  that  Miniota, 
also  on  a  branch  line,  and  196.8  miles  distant  from  Winni- 
peg, paid  the  fifty-four  cent  rate.  The  language  of  the  de- 
»  18  C.R.C.  403. 


UNJUST  DISCRIMINATION  167 

cision,  therefore,  takes  more  sweeping  ground  than  would 
seem  necessary  under  the  circumstances.  The  fact  that  a 
standard  tariff  is  affected  really  does  not  make  much 
difference.  It  is  at  least  debatable  that  if  higher  rates  are 
justified  on  the  branch  line  on  account  of  the  lightness 
of  traffic,  that  should  consistently  find  expression  in  the 
standard  mileage  scale.  Though  it  cannot  be  said  on  the 
facts  of  the  case  that  the  Board  has  departed  from  its 
original  holding,  the  language  of  the  opinion  would  give  a 
colorable  suggestion  that  it  has  drawn  back,  certainly  to 
some  degree,  from  its  earlier  position.  The  principle,  how- 
ever, is  becoming  gradually  limited  and  defined.  In  March, 
1915,  anent  the  application  of  the  Edmonton,  Dunvegan 
&  British  Columbia  Railway  to  apply  the  mountain  scale 
of  rates  to  its  line,  the  Board  said,  "It  is,  of  course,  a  fact 
that  the  Board  has  recognized  that  in  certain  instances  a 
higher  rate  on  branch  lines  may  be  charged  than  on  main 
lines."  ^  In  July  the  decision  in  the  Two  Creeks  Case  set 
forth  that  a  difference  in  density  of  traffic  as  between  main 
and  branch  lines  does  not  affect  the  application  of  a  stand- 
ard-freight mileage  tariff.  In  November,  dealing  with  the 
complaint  of  Herbert  Oyler  on  the  rate  charged  on  apples 
from  a  point  on  the  North  Mountain  branch  of  the  Do- 
minion Atlantic  Railway  Company  to  Halifax,  the  Board 
said,  "In  general,  standard  mileage  rates  are  charged  to 
the  junction  point  where  the  special  mileage  rates  become 
effective."  ^  A  comparison  with  this  position  and  the 
ground  taken  in  the  Tan  Bark  Case  reveals  the  advance 
that  the  Board  has  made  in  dealing  with  cases  involving 
branch-line  traffic,  and  sets  some  measure  upon  the  de- 
gree of  discrimination  against  branch-line  points  after 
which  it  will  be  deemed  "  unjust  discrimination." 

Passing  from  the  problem  of  branch-line  traffic  we  may 
turn  to  the  question  of  costs  when  traffic  moves  over  two 
or  more  lines  of  railroad.    Certain  items  of  expense  are 

1  10/342.  «  11/1*39. 


1G8  CANADIAN  RAILWAY  RATES 

naturally  increased.  Bookkeeping  expenses  are  higher, 
cars  have  to  be  sorted  out  at  terminal  points,  and  other 
special  costs  are  incurred.  The  Board  has  recognized  that 
this  constitutes  a  proper  reason  for  discrimination  in  rates 
where  the  toll  is  higher  in  comparison  with  that  paid  on  a 
route  of  the  same  length  and  of  the  same  general  nature 
except  that  it  is  under  the  control  of  a  single  company. 
In  reply  to  a  complaint  of  the  Sudbury  Board  of  Trade 
that  the  joint  rate  on  coal  from  the  Niagara  frontier  was 
higher  to  Sudbury  than  to  North  Bay,  distance  consid- 
ered, it  admitted  that  the  ton-mile  rate  to  North  Bay  was 
lower,  but  pointed  out  that  it  was  a  single-line  shipment 
while  the  Black-Rock-Sudbury  movement  was  a  three- 
line  movement.^  The  principle  was  not  given  much  weight 
in  this  decision,  although  a  factor,  but  received  confirma- 
tion in  an  express-rate  decision  where  it  was  made  the  con- 
trolling element.  When  the  Canadian  Northern  Railway 
acquired  control  of  the  Central  Ontario  Railway,  the  Do- 
minion and  Canadian  Express  companies  withdrew  in 
favor  of  the  Canadian  Northern  Express  Company.  The 
latter  has  few  offices  in  Eastern  Canada  and  an  advance 
in  through  rates  to  points  in  the  territory  served  only  by 
the  other  companies  occurred.  The  Board  upheld  the  ad- 
vance on  the  ground  that  "traffic  handled  by  two  or  more 
companies  could  well  bear  a  heavier  toll  than  when  han- 
dled by  one  only,  there  being  extra  expense  in  transferring, 
waybilling,  and  the  like."  ^ 

In  the  Moosejaw  Board  of  Trade's  complaint  with  re- 
gard to  coal  rates  it  was  shown  that  the  rate  from  the 
Drumheller  mines  to  Moosejaw,  464  miles,  was  $3  a  ton, 
while  the  rate  from  the  same  point  to  Regina,  31  miles  of 
a  longer  haul,  was  $2.90  a  ton.  Drumheller  coal  moved  to 
Regina  along  the  rails  of  the  Canadian  Northern  entirely, 
but  in  the  case  of  the  movement  to  Moosejaw  the  haul 
was  a  two-line  movement.  The  Board  said :  — 

1  5/277.  2  8/278. 


UNJUST  DISCRIMINATION  169 

It  is  a  well  known  principle  that  a  joint  service  covering  as  it 
has  to  the  transfer  services  from  one  railway  to  another,  and 
duplicate  accounting,  is  more  expensive  than  service  on  a  single 
line.^ 

Similarly,  in  the  China  Clay  Case,  the  Board  declared 
that  it  was  elemental  that  for  a  given  distance,  where  two 
lines  had  to  be  employed  as  against  the  one,  the  rate  would 
be  greater.  2  Thus,  standing  squarely  on  the  cost-of-serv- 
ice  principle,  the  Board  has  recognized  the  validity  of 
the  contention  that  a  difference  in  rates  due  to  two  or  more 
lines  participating  in  the  traffic  is  not  unjust  discrimina- 
tion. 

The  question  of  costs  has  been  a  factor  in  a  number  of 
cases  directly  raising  the  long  and  short  haul  problem 
which  have  come  before  the  Commission.  In  other  in- 
stances, while  the  long  and  short  haul  element  has  entered 
into  the  case,  other  considerations  in  themselves  sufficient 
to  control  the  decision  have  been  present.  The  principle, 
however,  has  been  recognized  and  accepted  as  a  basic  fac- 
tor in  rate-making,  though  limited  in  application  by  the 
long  and  short  haul  clause  of  the  Railway  Act.  A  study  of 
the  decisions  shows  the  development  of  the  position,  that 
a  long  haul  may  reasonably  receive  a  lower  rate  than  a 
short  haul,  the  limitations  imposed  upon  the  principle  by 
legislative  enactment,  and  the  recognition  of  the  Board 
that  under  certain  circumstances  the  prohibitions  of  that 
clause  do  not  apply. 

The  general  principle  of  a  lower  proportionate  charge 
for  a  longer  distance  is  recognized  in  both  the  Sudbury 
Coal  Case  and  the  Express  Rates  Case  already  cited.  In 
these  cases  the  Board  declared  that  the  only  relief  it  could 
give  was  to  see  that  there  was  a  reasonable  reduction  on 
the  through  rates  below  the  sum  of  the  locals.  In  cases  of 
telegraph  tolls  provision  was  made,  in  cases  where  there 
was  a  movement  over  two  or  more  lines,  for  "through 
1  10/240.         2  10/326.  Cp.  VI  J.O.R.R.  62;  VI  J.O.R.R.  329. 


170  CANADIAN  RAILWAY  RATES 

rates  substantially  less  than  the  sum  of  the  locals."  ^  The 
principle  is  discussed  at  length  in  the  opinion  based  on  the 
general  express  investigation  ^  where  the  Board  deals  with 
express  freight  traffic.  With  reference  to  joint  routes  the 
Board  said:  — 

It  seems  clear  that  where  express  companies  establish  continu- 
ous routes  they  should  at  the  same  time  agree  upon  joint  rates 
for  their  freight  traffic,  and  a  division  thereof,  and  we  think  that 
these  should  be  less  than  the  sum  of  the  locals. 

The  Board  here  ordered  that  the  through  rate  should  be 
ten  per  cent  less  than  the  lowest  combination  of  local  mer- 
chandise rates.  This  general  position  is  in  sympathy  with 
the  long  and  short  haul  because  to  any  given  point  there  will 
normally  be  a  through  rate.  This  rate  will  be  a  lower  rate 
per  mile  than  the  sum  of  the  local  rates  per  mile  for  the 
same  distance.  It  follows  that  a  division  of  a  through  rate 
is  not  a  measure  of  what  the  local  rate  for  the  same  dis- 
tance over  the  same  line  should  necessarily  be.^ 

In  making  this  determination  the  Board  admitted  that 
the  question  of  joint  through  rates  had  not  been  discussed 
with  particularity.  The  Board  quoted  with  approval  from 
Professor  McPherson's  study  of  railway  rates,  where  he 
deals  with  the  long  and  short  haul,^  and  cited  the  prac- 
tice of  the  Indiana  and  the  Texas  State  Commissions  as 
to  the  amount  of  reduction  below  the  sum  of  the  local 
rates.  The  Board  has  not,  however,  independently  es- 
tablished the  principle  of  the  long  and  short  haul,  but  has 
relied  upon  standard  economic  theory  and  American  prece- 
dents and  experience.  This  is  rather  remarkable,  consid- 
ering the  importance  of  the  principle  and  the  position 
taken  by  the  Board  that  "the  Board  must  find  its  criteria 
of  the  reasonableness  of  Canadian  rates  within  Canada."  ^ 

1  VI  J.O.R.R.  62.  2  6/271.  ^  yi  J.O.R.R.  348. 

*  Logan  G.  McPherson,  Railroad  Freight  Rates  in  Relation  to  the  In- 
dustry and  Commerce  of  the  United  States,  pp.  239-40. 
6  8/16. 


UNJUST  DISCRIMINATION  171 

The  position,  however,  may  be  considered  fairly  estab- 
lished, though  there  are  some  exceptions.  In  the  case  of 
coal  rates  from  Ogdensburg  to  Newboro,  Ontario,  the 
traffic  moved  by  three  agencies,  the  ferry  across  the  St. 
Lawrence,  the  Grand  Trunk  Railway,  and  the  Canadian 
Northern.  The  latter  attempted  to  charge  the  local  rate 
for  its  share  in  the  haul.  No  joint  rate  for  the  traffic  had 
been  filed  with  the  Board.  In  view  of  the  through  move- 
ment the  Board  ordered  a  joint  tariff  to  be  filed  with  suit- 
able reduction  below  the  local  rate  by  the  Canadian 
Northern.^  In  The  Oliver  Serim  Lumber  Company  t\s\  The 
Canadian  Pacific  and  Esquimalt  &  Nanaimo  Railways, 
where  the  delivery  of  ties  by  the  carload  was  to  take  place 
on  the  Canadian  Pacific  track  at  Vancouver,  billed  to  an 
inland  point,  the  Board  held  that  the  lumber  company  was 
entitled  on  a  through  bill  of  lading  to  the  benefit  of  the 
through  toll  to  the  point  of  delivery.  This  involved  a  re- 
duction below  the  sum  of  the  local  rates  between  the  same 
points.^ 

With  regard  to  exceptions  the  force  of  these  holdings  is 
perhaps  weakened  by  the  Board's  statement  in  The  Cana- 
dian Oil  Company,  Limited,  vs.  The  Grand  Trunk  and 
Canadian  Pacific  Railways,^  that  "the  through  rate  may 
be  the  sum  of  several  locals,"  though  the  particular  prob- 
lem under  discussion  at  the  time  was  the  method  of  form- 
ing the  rate  rather  than  the  amount. 

In  the  Stoy  Case,  which  went  to  the  Supreme  Court, 
where  the  question  of  the  Board's  jurisdiction  to  sanction 
a  through  rate  from  American  points  was  confirmed,  the 
Board  said: — 

Oil  could  move  from  Windsor  or  Sarnia  over  the  Grand  Trunk 
Railway  to  Buffalo  at  the  rate  covered  by  the  tariff  and  under  the 
classification  in  question;  but  to  intermediate  points  in  Canada, 
over  the  same  route,  higher  rates  are  being  attempted  to  be  en- 

1  10/309.  2  17  C.R.C.  324.  3  7/200. 


172  CANADIAN  RAILWAY  RATES 

forced,  thereby  discriminating  against  the  Canadian  consignee. 
Such  results  should  not  be  permitted  unless  the  respondents  are 
entirely  within  the  provisions  of  Canadian  law.^ 

This  indicates  the  attitude  of  the  Board  as  to  the  extent 
to  which  the  principle  should  be  granted  recognition.  It  is 
in  accord  with  the  inhibitions  of  the  long  and  short  haul 
clause,  for  while  the  statute  recognizes  that  tolls  may  be 
proportionately  less  for  a  longer  distance,  where  a  through 
rate  exists  the  law  is  that  it  shall  not  be  greater  to  an  inter- 
mediate point  over  the  same  line.  This  was  the  burden  of 
the  International  Rates  Case,^  where  the  Canadian  cities 
of  western  Ontario  complained  that  the  rates  from  De- 
troit and  Buffalo  to  Montreal  were  lower  than  from  Wind- 
sor and  other  intermediate  points  on  the  same  line.  The 
Board  ordered  that  the  rates  from  Detroit  to  Montreal 
and  Toronto  should  be  the  maxima  easterly  and  that  the 
other  points  should  be  proportionately  scaled  to  them. 
In  this  instance  the  Board  really  validated  a  compromise 
arranged  by  its  chief  traffic  officer  and  the  interests  affected. 
It  is  necessary  to  bear  this  in  mind,  otherwise  the  holding- 
down  of  rates  to  the  Detroit  level  might  appear  repugnant 
to  the  principle  that  competing  points  are  without  the 
operation  of  the  long  and  short  haul  clause.^  When  the 
complaint  was  entered  the  Board,  in  suggesting  a  confer- 
ence, in  a  letter  to  the  chairman  of  the  Advisory  Commit- 
tee of  the  Canadian  Freight  Association  said :  — 

The  Board  recognizes  that  the  conditions  of  this  traffic  are 
aflFected  by  the  existence  of  companies  in  the  United  States  inde- 
pendent of  those  operating  in  Canada,  and  by  the  operation  of 
the  corresponding  clause  (the  long  and  short  haul)  in  the  statute 
law  of  the  United  States  .  .  .  and  it  thinks  the  Canadian  railway 
companies  should  be  given  an  opportunity  to  lay  a  scheme  before 
the  Board,  etc. 

A  clearer-cut  illustration  of  the  effect  of  the  long  and 
short  haul  clause  occurs  in  a  group  of  cases  relating  to 
1  5/211.  "  3/5  ff.  '  10/198. 


UNJUST  DISCRIMINATION  173 

traffic  in  prairie  territory.  The  key  to  these  decisions  lies 
in  the  attempt  of  the  newer  towns  and  cities  of  the  West 
to  deprive  Winnipeg  of  part  of  the  distributing  trade  and 
engross  it  to  themselves.  Until  1907  the  Winnipeg  jobbers 
had  reshipped  their  goods  out  on  the  balance  of  a  special 
through  rate  which  gave  them  a  secure  hold  on  the  market 
to  the  detriment  of  firms  located  in  cities  farther  west.  As 
a  result  rates  from  Portage  la  Prairie  to  points  farther  west 
were  actually  higher  than  rates  to  those  points  from  Winni- 
peg. Portage  is  on  the  main  line  fifty-five  miles  west  of 
Winnipeg,  so  that  the  case  was  a  clear  instance  of  discrimi- 
nation in  favor  of  the  larger  center.  The  Board  promptly 
disallowed  the  tariffs,  as  against  the  statute.  In  this  deci- 
sion the  question  was  fairly  met  and  it  illustrates  the  cen- 
tral position  of  the  Board. ^  The  Board  said  that  the  tariffs 
had  no  real  argument  in  their  favor  and  specifically  re- 
ferred to  the  fact  that  it  was  a  case  of  the  railways  try- 
ing to  maintain  a  higher  rate  for  a  shorter  distance  than 
for  a  longer  when  the  shorter  distance  was  included  in  the 
longer,  and  therefore  illegal.  This  applies  also  to  through 
lake-and-rail  rates  where  such  arrangements  exist.  ^ 

The  converse  problem  has  arisen  where  the  complaint 
has  been  that  the  sum  of  the  locals  was  less  than  the  through 
rate.  While  it  did  not  consider  it  necessary  to  issue  a  gen- 
eral order  the  Board  has  declared  ^  that  it  considers  it  a 
fundamental  principle  that  there  can  be  only  a  single  legal 
rate  between  two  points  and  that  a  joint  or  through  rate 
in  excess  of  the  sum  of  the  locals  is  prima  facie  unreason- 
able and  discriminatory.  An  attempt  was  made  to  have 
admitted  the  principle  of  holding  that  any  combination 
that  could  be  figured  out  lower  than  the  published  through 
rate  might  replace  the  through  rate  for  that  route.  The 
Board  refused  to  sanction  it.  It  cited  the  unsatisfactory 
nature  of  this  procedure  as  witnessed  by  the  experience 
of  the  Interstate  Commerce  Commission  and  the  cer- 
1  4/265.  2  VI  J.O.R.R.  505.  ^  5/216  ff. 


174  CANADIAN  RAILWAY  RATES 

tainty  of  confusion  that  its  use  would  cause.  ^  In  an  early 
case,  The  Canadian  Canners,  Limited,  vs.  The  Canadian 
Pacific  Railway,^  the  Board  really  accepted  this  position 
inferentially,  for  it  held  that  a  combination  rate  composed 
of  a  commodity  rate  and  a  local  rate,  which  was  lower  than 
the  through  rate,  was  the  proper  one  between  the  two 
points:  — 

It  may  happen  that  ignorant  shippers  will  not  be  given  this 
privilege,  whUe  those  better  iaformed  wUI  obtain  it;  but  the  in- 
formed shipper  should  not  on  that  ground  be  refused  the  lower 
rate. 

The  Board,  however,  has  drawn  back  from  this  posi- 
tion. Referring  to  this  case  it  said:  — 

It  is  apparent  that  this  was  a  decision  after  investigation  on 
particular  facts  and  regarding  a  particular  case.' 

Moreover,  while  the  rate  higher  than  the  sum  of  the 
locals  may  be  prima  facie  unreasonable,  it  does  not  follow 
that  it  is  thereby  illegal  or  unreasonable  in  a  given  case. 
In  an  appUcation  to  direct  that  a  joint  toll  from  Russell  to 
Point  Levis  via  the  Ottawa  &  New  York,  Canadian  Paci- 
fic, and  the  Intercolonial  Railways  should  be  reduced  to 
the  sum  of  the  locals  charged  between  the  same  points  by 
the  Grand  Trunk  and  the  Intercolonial  Railways,  the 
Board  reaflSrmed  the  view  that  at  any  one  time  there  is 
only  one  legal  rate  between  two  points.  In  this  instance 
the  Grand  Trunk  quoted  a  rate  of  thirteen  cents  on  lum- 
ber, the  sum  of  two  local  rates.  For  some  reason  thir- 
teen carloads  were  routed  via  the  other  fines,  and  a  case 
came  up  on  the  ground  of  overcharge,  the  rate  levied  be- 
ing fourteen  cents.  The  Board  refused  to  find  that  there 
was  an  overcharge,  and  held  that  fourteen  cents  was  the 
legal  rate  for  the  route  over  which  the  traffic  had  moved.* 

^  The  obligation  upon  the  carrier  in  the  absence  of  specific  instruction 
to  send  the  goods  forward  in  routing  off  its  own  line,  upon  the  lowest  rate, 
is  not  here  in  question.   11/129. 

*  3/126.  3  5/218.  *  18  C.R.C.  6. 


UNJUST  DISCRIMINATION  175 

However,  whether  this  really  advanced  on  the  position 
taken  in  the  general  order  for  joint  freight  and  joint  pas- 
senger tariffs  is  doubtful.  While  the  Board  ruled  that  there 
was  no  ground  for  an  overcharge,  it  did  not  directly  meet 
the  question  whether  the  fourteen-cent  rate  was  unrea- 
sonable and  left  itself  free  to  consider  that  question  should 
it  come  up  on  direct  attack.  The  case  does  illustrate  the 
reluctance  of  the  Board  to  establish  any  canon  of  rea- 
sonableness that  would  tie  its  hands  and  prevent  its  acting* 
after  investigation.  It  is  therefore  really  in  line  with  its 
statement  in  the  general  order  covering  joint  rates.  In 
the  general  order  the  whole  problem  of  the  relation  of  joint 
tariffs  to  the  sum  of  the  locals  is  discussed.  The  draft 
order  submitted  to  the  Board  asked  it  to  accept  the  view 
that  a  through  rate  might  be  made  up  by  a  combination 
of  a  commodity  rate  and  a  local  rate.  To  this  the  Board 
replied:  — 

A  commodity  rate  is  established  because  of  special  conditions 
of  volume  of  traffic,  competition,  etc.  I  for  one  cannot  conclude 
in  advance  of  an  investigation  that  such  a  commodity  rate  in 
respect  of  traffic  moving  between  two  given  points  is  in  any  sense 
the  measure  of  the  reasonableness  of  a  through  rate  to  a  point 
beyond.^ 

In  sympathy  with  this  is  the  holding  that  competition 
creates  circumstances  that  justify  the  suspension  of  the 
operation  of  the  long  and  short  haul  clause.  The  statute 
contemplates  such  a  position  and  cases  considered  under 
the  section  dealing  with  competition  illustrate  the  appli- 
cation of  the  principle.  In  the  general  express  investiga- 
tion finding  it  is  set  forth  in  general  terms :  — 

Competition  between  carriers  by  rail,  and  competition  be- 
tween carriers  by  water  and  carriers  by  rail,  create  favored  loca- 
tions to  and  from  which  tolls  are  lower  and  to  which  the  long  and 
short  haul  clause  has  no  application.^ 

»  5/218. .  2  6/270. 


176  CANADIAN  RAILWAY  RATES 

This  has  been  extended  in  interpretation  so  that  in  the 
case  of  passenger  traffic  "pervasive"  competition  is  rec- 
ognized as  justifying  competitive  rates  at  intermediate 
points  on  the  main-hne  movement.^  "The  potential  choice 
of  the  prospective  passenger  spreads  the  effect  of  competi- 
tion over  the  whole  journey."  The  occasion  of  this  rul- 
ing was  a  complaint  by  the  city  of  Fredericton  that  the 
Canadian  Pacific  Railway  made  the  Moncton-Montreal 
rate,  a  rate  made  in  competition  with  the  Intercolonial 
Railway,  the  maxima  for  St.  John  and  intermediate 
points  between  St.  John  and  Moncton.  The  rate  from 
Fredericton  was  made  by  adding  to  the  competitive  rate 
the  one-way  fare  to  the  junction  point.  The  Board  said 
that  competition  is  one  factor  creating  dissimilar  circum- 
stances and  conditions,  and  where  found  to  exist  the  lower 
rate  may  be  allowed,  a  holding  that  works  out  the  im- 
plications of  the  British  Columbia  Interior  Rates  Case. 

The  general  attitude  of  the  Board  to  this  intricate  phase 
of  rate  adjustment  may  now  be  summed  up  in  a  few  sen- 
tences. (1)  A  lower  rate  than  the  sum  of  the  locals  should 
apply  to  through  traffic.  (2)  Rates  to  intermediate  points 
should  not  exceed  the  through  rate  or  the  sum  of  the 
locals.  (3)  Where  the  through  rate  is  higher  than  a  com- 
bination of  the  locals  it  is  prima  facie  illegal.  (4)  The  bal- 
ance of  a  through  rate  may  not  replace  a  local  rate  to  points 
beyond.  (5)  The  reasonableness  of  a  rate  composed  of  a 
combination  of  a  commodity  rates  and  a  local  rate  will  be 
determined  in  the  light  of  the  particular  circumstances. 
(6)  There  is  only  one  legal  rate  between  two  points.  (7) 
Rates  compelled  by  water  or  rail  competition  are  not  sub- 
ject to  the  restrictions  of  the  long  and  short  haul  clause 
wherever  such  competition  is  effective. 

Certain  cost  considerations,  such  as  distance,  density, 
and  similar  factors,  remain  to  be  considered.  We  have 
seen  that  cases  involving  branch-line  traffic,  joint-hne  traf- 
1  10/255  ff. 


UNJUST  DISCRIMINATION  177 

fie,  and  the  long  and  short  haul  exhibit  certain  elements 
of  cost  which  justify  a  difference  in  rates  where  the  other 
conditions  of  carriage  are  substantially  similar.  In  these 
cases  involving  discrimination  the  rate  is  not  attacked  as 
being  in  itself  unreasonable.  Under  the  category  of  rates 
per  se  unreasonable  ^  it  will  be  remembered  that  it  was 
shown  that  while  some  use  was  made  of  distance  as  a 
measure  of  cost  of  transportation,  on  the  whole  it  was 
relegated  to  a  place  of  inferior  importance.  More  ex- 
tended use  is  made  of  the  principle  in  cases  of  discrimi- 
nation,^  though  the  Board  has  repeatedly  declared  that  it 
is  "idle  to  compare  rates  one  with  another  on  a  strict 
mileage  basis,"^  holding  that  distance  is  not  a  sufficient 
basis  of  comparison,  but  that  there  should  be  a  similarity 
if  not  "identity  of  conditions."  ^  Still  the  definite  nature 
of  the  data,  where  other  conditions  are  substantially  simi- 
lar, makes  them  peculiarly  valuable  in  cases  concerned 
with  discrimination,  and  they  have  been  used  with  con- 
siderable frequency  as  a  factor  in  cases  of  this  sort. 

In  the  Regina  Rate  Case,^  part  of  the  struggle  of  Western 
cities  to  secure  the  same  treatment  as  Winnipeg  with  re- 
gard to  the  possibilities  of  distribution,  it  was  complained 
that  special  class  freight  tariffs  to  Winnipeg  discriminated 
against  Regina  and  other  Western  cities.  It  was  shown 
that  the  rate  from  Fort  William  to  Winnipeg,  419  miles, 
on  first-class  freight  was  86  cents  per  hundred  pounds,  or 
at  a  ton-mile  rate  of  4.11  cents,  while  to  Regina,  777  miles, 
it  was  $1.76  per  hundred,  or  at  a  ton-mile  rate  of  4.53  cents. 
Other  classes  of  freight  when  compared  disclosed  a  similar 
disparity.  The  railways  defended  the  discrepancy  on  the 
ground  that  contracts  between  various  railroads  and  the 
Province  of  Manitoba  had  resulted  in  lower  rates  to  that 
Province  and  that  these  contracts  established  a  dissimi- 

»  Chapter  VI. 

*  "  Distance  is  an  important  factor  in  the  measure  of  discrimination." 
VI  J.O.R.R.  38. 

»  10/241.  4  9/274.  ^  6/169. 


178  CANADIAN  RAILWAY  RATES 

larity  of  condition  that  justified  the  difference  in  rates. 
The  Board  rephed  that  it  could  not  surely  have  been  the 
intention  of  Parliament  to  permit  railway  companies  to 
create  different  circumstances  and  conditions  by  entering 
into  a  contract  with  some  one  that  would  defeat  the  clause 
enjoining  equality  of  treatment  to  shippers :  — 

The  "circumstances  and  conditions"  which,  if  not  substan- 
tially similar,  may  justify  different  treatment  to  different  points, 
I  think  must  be  traflSc  circumstances  or  traffic  conditions;  not 
circumstances  and  conditions  which  may  be  artificially  created 
by  contract.^ 

As  a  result  of  this  view  a  similar  reduction  was  ordered 
to  apply  to  Regina  and  Moosejaw.  This  was  later  ex- 
tended to  Edmonton.  In  one  aspect  the  holding  of  the 
Board  was  overturned  by  the  Supreme  Court,  which  said 
that  contracts  were  circumstances  and  conditions  to  be 
considered. 2  It  did  not,  however,  affect  in  a  practical  way 
the  Board's  holding,  for  the  latter  declared,  when  the  case 
was  reopened,  that  it  had  considered  them  and  that  the 
order  issued  was  not  inconsistent  with  the  Supreme  Court's 
decision. 

Western  cities  were  not  put  on  an  exact  parity  with 
Winnipeg  even  by  this  decision.  By  the  terms  of  the 
agreement  with  the  railway  companies  in  Manitoba,  the 
special  class  rates  were  those  of  the  281-290  mile  group  in 
Manitoba  Standard  Tariff,  on  freight  from  Fort  William 
to  Winnipeg,  instead  of  the  actual  distance.  The  Saskat- 
chewan scale  of  standard  rates  being  higher  than  the  Mani- 
toba scale,  the  rate  for  290  miles  in  the  latter  was  the  same 
as  the  rate  for  250  miles  in  the  former  and  the  shrinkage 
was  made  correspondingly  less. 

Finally,  this  difference  was  also  wiped  out.  In  the  West- 
ern Rates  Case  this  relief  was  especially  asked  for  by  the 

1  6/172  fF. 

^  This  holding  is  of  importance  in  the  telegraph  rates  case.  VI  J.O.R.R. 
36. 


UNJUST  DISCRIMINATION  179 

Provinces  of  Alberta  and  Saskatchewan.  The  railways 
contended  that  the  justification  of  the  lower  rate  in  Mani- 
toba lay  in  a  great  density  of  tonnage.  To  this  the  Board 
answered  that  the  class  of  commodities  offered  for  carriage 
and  the  climatic  and  operating  conditions  of  the  districts 
are  very  largely  the  same,  and  that  — 

to  treat  the  case,  therefore,  merely  on  the  question  of  density  of 
tonnage  would  be  simply  to  use  traffic  derived  in  part  from 
Saskatchewan  itseK  as  a  reason  for  denying  Saskatchewan  the 
removal  of  a  discrimination  existing  in  the  territory  subject 
entirely  to  like  op)erating  conditions.^ 

The  Board  accordingly  ordered  the  extension  of  the 
Manitoba  Standard  Tariff  to  the  whole  prairie  area  and 
changed  its  name  to  the  Prairie  Standard  Tariff.  Thus, 
by  a  succession  of  steps  Winnipeg  and  Manitoba  have 
been  deprived  of  the  advantages  they  had  obtained,  and 
the  whole  area  between  the  Great  Lakes  and  the  Rockies 
has  been  put  on  the  same  level  in  respect  to  class  rates 
through  the  medium  of  a  mileage  tariff.  Distance  is  the 
controlling  principle.  The  fact  that  it  is  does  not  mean 
that  it  is  mechanically  employed,  but  that  fundamentally 
the  class  rates  between  any  two  points  are  in  some  meas- 
urable relationship  to  the  distance.  The  lack  of  consis- 
tency of  the  reasoning  here  with  that  employed  in  the  Tan 
Bark  Case  with  respect  to  branch-line  traffic  has  been 
adverted  to  in  the  complaint  of  the  Two  Creeks  Grain 
Growers'  Association,  which  logically  follows  in  its  disposi- 
tion the  Western  Rates  decision.  In  connection  with  the 
importance  of  the  factor  of  density  in  rate-making  it  will 
receive  further  consideration. 

These  Western  cases,  involving  large  areas  where  freight 
moves  under  like  conditions,  exhibit  the  most  important 
use  of  the  distance  principle  by  the  Board.  These  decisions 
may  be  compared  with  those  of  the  Board  which  concern 

1  File  18755,  Judgment,  p.  51. 


180  CANADIAN  RAILWAY  RATES 

grain  rates  from  the  Lake  ports  to  interior  elevators  in 
Eastern  Canada.^  Here  the  Board  ordered  the  railways 
to  equalize  rates  for  equivalent  distances.  In  brief,  the 
general  principle  may  be  stated  to  be  that  where  traffic 
of  the  same  class  moves  under  substantially  similar  con- 
ditions the  traffic  will  be  based  on  distance  with  due  re- 
gard to  and  subject  to  the  limitations  of  the  principles 
of  the  long  and  short  haul.'^  "If  no  extraneous  disturbing 
conditions  are  present,"  distance  "affords  on  the  average 
a  working  measure  of  reasonableness."  ^ 

The  principle  that  density  of  tonnage  may  be  disre- 
garded when  the  traffic  which  accounts  for  the  density 
originates  in  adjoining  territory  where  operating  condi- 
tions are  similar,  is  worthy  of  some  consideration.^  Except 
on  the  basis  that  volume  of  traffic  has  a  negligible  effect  on 
lowering  cost  of  moving  freight,  it  is  difficult  to  interpret 
the  holding.  Examined  narrowly  it  would  seem  that  it 
rests  either  upon  a  purely  legal  foundation  or  upon  broad 
views  of  public  policy.  At  that,  it  is  to  be  noted  that  it 
certainly  is  at  variance  to  the  reasoning  applied  in  the  Tan 
Bark  Case,  for,  if  volume  of  traffic  is  negligible  as  between 
Provinces,  it  surely  cannot  be  maintained  that  where  the 
traffic  is  light  each  unit  shall  bear  a  larger  proportion  of 
the  fixed  costs,  and  that  is  what  the  Tan  Bark  Case  stands 
for  with  respect  to  branch-line  traffic.  To  some  degree  this 
contrary  holding  marks  a  recession  from  the  rigid  appli- 
cation of  the  advantages  of  location  principle  that  the 
Board  has  so  frequently  applied.  The  Manitoba  shipper 
and  consumer  is  prevented  from  reaping  any  advantage 
out  of  the  fact  that  tonnage  is  heavier  within  that  Prov- 
ince on  account  of  its  proximity  to  the  Great  Lakes.  The 
recency  of  the  decision  re  Western  Rates  renders  it  im- 
possible to  determine  whether  this  represents  a  broaden- 

1  6/146.  4/302.        2  Cp.  8/58  rates  on  wire;  VI  J.O.R.R.  287,  490. 
8  VI  J.O.R.R.  39. 

*  Cp.  recognition  of  factor  of  volume  in  telegraph  toUs.  VI  J.O.R.R. 
55,  59,  61. 


UNJUST  DISCRIMINATION  181 

ing  of  the  attitude  of  the  Board  to  problems  where  ques- 
tions of  public  policy  are  at  issue. 

It  has  already  been  pointed  out  that  the  principle  of 
distance  in  rate-making  becomes  important  only  when 
operating  conditions  are  similar.  This  may  be  illustrated 
more  fully  by  a  consideration  of  The  Vancouver  East- 
bound  vs.  The  Winnipeg  Westbound  Rates  Case.^  The 
complaint  preferred  was  that  undue  preference  was  given 
to  traffic  from  Winnipeg  westward  as  compared  with  that 
from  the  coast  cities  eastward.  The  complainants  relied 
mainly  on  comparison  of  the  respective  distances  that 
goods  could  be  carried  at  a  given  rate  from  these  two 
points.^  They  claimed  that  the  levying  of  a  higher  rate 
for  a  shorter  distance  raised  a  presumption  of  unjust  dis- 
crimination. At  first  blush,  it  might  appear  that  the  foun- 
dation of  the  complaint  was  that  traffic  moving  in  opposite 
directions  on  the  same  portion  of  the  same  line  was  being 
charged  different  rates.  In  reality  the  case  rested  on  a 
comparison  of  traffic  charges  for  distances  chiefly  on  differ- 
ent portions  of  the  same  line,  though  moving  in  opposite 
directions.  The  Board  emphasized  a  dissimilarity  in  the 
circumstances  under  which  transportation  is  conducted 
out  of  Vancouver  and  out  of  Winnipeg.  It  said  that  the 
evidence  had  established  that  the  grades  were  much  heav- 
ier and  the  line  much  more  difficult  to  operate  in  British 
Columbia  than  in  the  prairie  Provinces.  As  a  result  the 
application  to  equalize  these  rates  at  a  point  farther  east 
was  refused. 

On  the  other  hand,  in  certain  instances  where  operating 
conditions  are  dissimilar  for  part  of  the  movement  mileage 
equivalents  have  been  worked  out.  Thus,  in  the  case  of 
traffic  moving  from  British  Columbia  into  the  prairie  Prov- 
inces, the  Board,  by  the  Western  Rates  judgment,  created 
one  mountain  scale  on  the  basis  of  li  for  1  of  mountain 
mileage,  and  thus  greatly  simplified  the  rate  structure.  On 

1  4/^07.  *  Cp.  9/285. 


182  CANADIAN  RAILWAY  RATES 

account  of  an  agreement  between  some  of  the  lumber 
mills  and  the  Canadian  Pacific  Railway  the  former  ar- 
rangements for  lumber  were  continued.  The  lumber-rates 
scale  followed  no  definite  scheme,  but  was  worked  out  on 
the  idea  of  letting  all  mills  share  the  business.  However, 
the  Mountain  Lumber  Manufacturers'  Association  ob- 
jected that  the  rates  discriminated  against  Golden  on  the 
main  line  in  favor  of  Fernie  on  the  Crowsnest  branch.  In 
the  lumber  scale  mountain  mileage,  on  account  of  heavier 
grades  on  the  main  line,  was  reckoned  at  2  for  1  for  moun- 
tain mileage  against  1^  for  1  on  the  Crowsnest  branch. 
The  actual  mileage  from  Golden  to  Calgary  is  17L7,  from 
Fernie  to  Calgary  215.2.  Under  the  system  obtaining  this 
gave  a  constructive  mileage  for  Golden  for  276.3  and  for 
Fernie  233.1.  Under  the  principle  applied  elsewhere  in 
the  Western  Rates  Case,  constructive  mileage  for  Golden 
would  become  224,  Fernie  mileage  remaining  at  233.1. 
This  laid  the  foundation  of  the  complaint.  Pointing  out 
that  the  railways  had  adjusted  tariffs  to  enable  all  mills  to 
do  business,  the  Board  continued:  — 

While  it  is  true  that  a  specific  commodity  rate  but  rarely  bears 
any  relationship  to  the  mileage,  one  would  not  expect  that  situ- 
ation to  apply  in  dealing  with  a  general  article  of  commerce 
such  as  lumber,  affecting  different  sources  of  supply,  selling  in 
a  common  market  ...  if  the  applicants  desire  ...  a  complete 
lumber  tariff  based  on  distance  and  bearing  a  reasonable  and 
consistent  percentage  relationship  to  the  standard  maximum 
10th  class  rates,  I  think  they  are  entitled  to  it,  and  to  a  direction 
being  made  to  the  railway  company  to  submit  a  proposition  for 
such  a  tariff.^ 

In  the  International  Pulpwood  Rates  Case  ^  one  branch 
of  the  complaint  concerned  the  rates  on  the  Canadian  Pa- 
cific MontLaurier  branch.  In  this'instance  also  the  Board 
denied  relief,  assigning  as  its  reason  the  heavy  character 
of  the  Laurentian  grades.  Thus  it  is  quite  obvious'that 
»  17  C.R.C.  285.  Cp.  9/297.  «  8/274. 


UNJUST  DISCRIMINATION  183 

while  distance  comparisons  may  be  relied  upon  as  a 
measm^e  of  reasonableness  in  cases  where  discrimination  is 
charged,  the  conditions  under  which  it  becomes  controlling 
are  relatively  narrow  and  difficult  to  establish. 

In  any  instance  where  the  railway  companies  have 
grouped  rates  around  a  common  point  there  has  neces- 
sarily been  some  departure  from  the  principle  of  distances. 
A  number  of  complaints  has  caused  the  Board  to  investi- 
gate and  consider  this  practice.  Group  rates  have  been 
applied  to  the  carriage  of  cream  to  cities  and  creameries, 
also  to  the  distribution  of  coal  from  mines  located  within 
a  certain  area.  The  system  worked  out  for  the  collection 
of  cream  is  a  modified  group-rate  system.  The  scale  of 
rates  is  graduated  to  twenty-five  mile  zones,  the  increase 
becoming  proportionately  less  as  the  distance  advances. 
In  the  East  these  rates  are  calculated  for  a  distance  of  two 
hundred  miles,  ^  in  the  West  to  three  hundred  miles. ^ 

In  the  coal  areas  in  Western  Canada  the  problem  is 
more  difficult,  as  the  mines  lie  for  some  distance  along  the 
railroad.  The  method  devised  has  been  to  give  the  whole 
area  a  rating  to  surrounding  territory,  but  subdividing 
the  area  into  sub-groups,  giving  the  particular  sub-group 
nearest  any  point  in  question  the  common  rate,  while  the 
other  sub-groups  would  take  the  common  rate  plus  an 
arbitrary.  This  arrangement  was  challenged  before  the 
Board  in  the  complaint  of  the  Galbraith  Coal  Company,' 
which  alleged  that  the  effect  of  the  tariff  was  to  unduly 
increase  the  difference  in  rates  between  Lethbridge  and  its 
mines  at  Lundbreck  seventy-four  miles  west.  The  rail- 
road defended  the  system,  claiming  that  a  direct  mileage 
scale  worked  too  much  discrimination  between  mines  be- 
longing practically  to  the  same  group,  and  the  sub-groups 
enabled  mines  to  be  given  the  same  rate  where  mileage, 
gradients,  and  physical  difficulties  could  all  be  taken  into 
consideration.  The  Board  said  that  it  was  evident  that 
1  7/268.  2  8/16.  3  6/149. 


184  CANADIAN  RAILWAY  RATES 

the  railway  had  made  a  careful  attempt  to  take  care  of  the 
various  conditions  arising  and  refused  to  find  discrimina- 
tion in  the  system.  It  ordered  merely  that  the  rate  should 
be  modified  where  a  "too  rigid  adherence  to  mileage" 
caused  the  break  between  groups  to  become  a  hardship. 

The  discretion  of  the  Board  to  sanction  group-rating 
arrangements  is  also  recognized  in  The  Eureka  Coal  & 
Brick  Company  vs.  The  Canadian  Pacific  Railway,  where 
a  grouping  arrangement  controls  the  shipments  of  coal 
from  the  mines  in  the  Souris  River  Valley.^ 

That  the  justification  of  group  rating  in  the  eyes  of  the 
Board  appears  to  be  in  the  fact  that  where  applied  it  has 
had  to  do  with  industries  carried  on  under  common  con- 
ditions within  a  well-defined  area,^  is  well  shown  in  the 
case  of  The  Fullerton  Lumber  and  Shingle  Co.  vs.  The 
Canadian  Pacific  Railway.  Here  the  lumber  company 
complained  that  to  some  shipping  points  the  through  rates 
were  in  excess  of  the  sum  of  the  locals.  The  Board  replied 
that  if  one  looked  at  the  matter  from  the  standpoint  of 
distance,  any  group  arrangement  presented  anomalies :  — 

A  group-rate  arrangement  endeavors  to  average  distance  and 
public  convenience.  If  each  point  of  a  group  is  to  be  singled  out 
for  special  treatment  on  a  mileage  basis,  then  the  group  disap- 
pears and  the  points  with  the  shortest  mileage  get  an  advantage 
in  marketing.  But  it  has  been  recognized  that  in  the  case  of 
bulky  articles  of  general  demand,  it  is  in  the  public  interest  to 
equalize,  within  reasonable  limits,  distance  so  that  there  may  be 
as  large  a  supply  as  possible  in  the  consuming  market.  Grouping 
in  this  case  is  concerned  with  the  handling  of  lumber  from  com- 
mon sources  of  supply  for  sale  in  a  widely  extended  market.  .  .  . 
The  rate  must  be  looked  at  from  this  standpoint  not  from  mere 
distance.^ 

Similarly,  the  Board  also  validated,  "as  a  matter  of 
practical  administration,"  the  zone  system  in  connection 
with  telegraph  tolls.  While  doing  so  it  repeated  the  state- 
ment that  in  any  system  of  zones  there  were  anomalies. 
»  6/328.  2  11/154.  3  9/308. 


UNJUST  DISCRIMINATION  185 

These  it  held  would  be  reduced  if  the  zones  approached 
each  other  nearly  in  dimension.  In  the  matter  of  telegraph 
message  rates  zones  were  reduced  to  a  parity,  not  only  in 
the  initial  charge,  but  also  in  extra  words.  ^ 

Volume  is  another  element  to  be  considered  here,  for, 
although  the  Board  has  declared  that  density  of  tonnage 
may  be  ignored  in  adjusting  general  rate  levels,  it  has 
rather  tended  to  give  considerable  weight  to  volume.  Thus, 
in  the  case  of  pressed  brick  moving  from  Bradford,  Penn- 
sylvania, to  Windsor,  Ontario,  where  the  rates  were  com- 
pared with  those  levied  on  coal,  the  Board  said,  "it  is  to 
be  recognized  that  the  volume  moving  is  a  factor  in  the 
determination  of  the  rate."  ^  The  issue  is  raised  directly 
in  the  case  of  the  rate  on  lumber  from  Tynehead  to  Clov- 
erdale,  British  Columbia,  when  it  was  shown  that  the  rate 
from  Tynehead  to  New  Westminster  was  three  cents  per 
hundred  pounds,  while  the  rate  from  Tynehead  to  Clover- 
dale,  a  shorter  distance  over  the  same  line,  but  in  the  oppo- 
site direction,  was  six  cents. ^  The  answer  of  the  railway 
company  was  that  the  lumber  traffic  from  Tynehead  south 
was  very  light,  while  that  from  the  same  point  north  to 
New  Westminster  was  heavy.  Hence  the  difference  in 
rates.  The  Board  in  its  opinion  said,  "if  the  facts  are  as 
stated  the  answer  is  a  legitimate  one."  The  decision,  how- 
ever, turned  on  a  comparison  with  the  commodity  rate  of 
the  Canadian  Pacific  and  some  reduction  was  ordered. 
The  comment,  notwithstanding,  made  it  appear  that  the 
Board  was  prepared  to  give  rigid  effect  to  the  clause  which 
provides  that  the  tolls  for  larger  quantities  might  be  pro- 
portionately less  when  carried  under  substantially  the 
same  conditions.  It  is  unfortunate  if  this  interpretation 
of  the  clause  was  the  safest  one  that  could  be  given.  As 
between  carload  and  less  than  carload  traffic  its  justice 
would  be  obvious,  but  if  applied  as  between  the  shipper  of 
a  few  carloads  and  many  carloads  a  door  would  be  opened 
»  VI  J.O.R.R.  66.  2  9/271.  ^  6/149. 


186  CANADL\N  RAILWAY  RATES 

for  the  discrimination  between  the  large  shipper  and  his 
smaller  rival.  In  this  case  the  actual  difference  in  traffic 
was  not  shown,  so  that  the  Board  disposed  of  the  case  on 
other  grounds.  The  Board,  however,  is  bound  by  the 
statute,  so  that  if  unfair  discrimination  should  creep  in 
at  this  point  the  remedy  would  lie  in  an  amendment  to 
the  act.  However,  a  later  case  inferentially  weakens  the 
force  of  these  holdings  considerably.  In  The  St.  David's 
Sand  Company  vs.  The  Grand  Trunk  and  Michigan  Cen- 
tral Railways  the  Board  declared,  "while  it  is  justifiable 
to  base  differences  in  toll  on  quantity  as  between  C.L.  and 
L.C.L.  traffic  movement,  it  is  not  justifiable  to  make  a 
difference  between  carload  and  train  load  movements."  * 
Under  the  Tan  Bark  Case  and  the  argument  accepted  re 
rates  on  lumber  moving  from  Tynehead,  the  small  firm 
on  the  branch  hne  could  be  charged  higher  rates  than  the 
large  competitor  on  the  main  line  on  two  bases.  He  was 
located  on  a  branch  line;  his  volume  of  output  relatively 
was  not  large.  Under  the  modified  holdings  with  respect 
to  branch-line  traffic  and  volume  of  shipment  his  position 
is  considerably  improved.  The  later  position  of  the  Board 
is  also  more  in  sympathy  with  its  holdings  with  respect  to 
applications  for  rates  for  car-lot  quantities. 

Let  us  consider  the  Board's  holding  on  carload  and  less 
than  carload  shipments  when  these  have  been  directly 
under  review.  It  is  generally  conceded  that  when  traffic 
moves  in  carload  quantities  the  cost  of  the  service  is  less 
than  when  it  moves  in  less  than  carload  quantities.  Mr. 
Commissioner  Mills  has  analyzed  the  differences  in  the 
nature  of  the  traffic  which  justify  this  conclusion.  He 
points  out  that:  — 

In  the  case  of  carload,  no  freight  shed  accommodation  is  re- 
quired either  at  the  initial  point  or  at  destination;  the  shipper 
does  the  loading  at  his  own  expense;  the  railroad  company  is 
paid  for  full  capacity  car  load,  whether  the  car  is  filled,  half-filled 

1  17  C.R.C.  279. 


UNJUST  DISCRIMINATION  187 

or  third  filled;  the  car  is  simply  hauled  from  one  point  to  another 
fixed  point,  involving  little  or  no  outlay  in  transit  similar  to  the 
heavy  expense  incurred  by  the  frequent  shunting  of  the  same  car 
and  the  handling  (loading  and  unloading)  of  L.C.L.  way  freight; 
and  the  loss  to  the  company  from  breakage  or  other  damage 
to  goods  is  comparatively  little,  because  the  shipper  (a  directly 
interested  party)  does  the  arranging,  packing  and  staying  of  his 
goods  in  the  car;  and  the  consignee,  another  directly  interested 
party,  generally  does  the  unloading.^ 

These  considerations  were  advanced  in  reply  to  the  con- 
tention of  the  railway  companies  that  the  inclusion  of 
gramophones  in  the  group  of  musical  instruments  that 
take  carload  ratings  would  decrease  the  revenues  of  the 
companies.  The  Commissioner  concluded  that  it  did  not 
necessarily  follow  that  a  company  secures  less  net  revenue 
from  carload  than  from  less  than  carload  shipments  of 
goods,  and  recommended  that  carload  rating  be  given  to 
gramophones.  In  view  of  the  importance  with  which  the 
Board  has  endowed  cost  factors,  the  natural  supposition 
would  be  that  this  disposition  of  the  case  would  be  unani- 
mously accepted.  Of  the  two  Commissioners  who  con- 
sidered the  case  each  based  his  conclusion  on  different 
factors  in  the  problem.  The  application  to  include  gramo- 
phones among  musical  instruments  which  receive  a  car- 
load rating  was  ordered  actually  because  a  third  Commis- 
sioner took  the  view  that  gramophones  were  as  much 
musical  instruments  as  music-boxes,  to  which  the  railroads 
had  voluntarily  given  a  carload  rating. 

Mr.  Commissioner  McLean,  one  of  the  original  Commis- 
sioners, dissented  from  this  conclusion,  holding  that  the 
ultimate  consumer  would  not  benefit  by  the  change  in 
rate.  This  dissenting  opinion  is  to  be  coupled  with  the 
disposition  of  an  application  by  H.  E.  Ledoux  for  a  car- 
load rating  on  cigars. ^  In  this  case  the  applicant  stated 
that  he  was  prepared  to  ship  between  eight  and  twelve 
carloads  of  cigars  annually  to  Winnipeg  from  Montreal. 

»  8/39.  2  7/185. 


188  CANADIAN  RAILWAY  RATES 

The  application  was  rejected.  The  Board  held  that  the 
granting  of  the  request  would  reduce  the  revenue  of  the 
company,  while  there  was  no  evidence  that  any  other  manu- 
facturer of  cigars  in  the  East  would  ship  any  number  of 
carloads  westwards :  — 

Other  manufacturers  of  cigars  in  the  East  who  do  not  carry 
on  their  business  in  the  same  way  as  the  applicants  and  who 
have  no  need  of  carload  rating,  as  they  do  not  and  would  not 
ship  in  car-lot  quantities,  would  be  discriminated  against  by  the 
preference  which  such  a  rating  would  give  the  applicants. 

Somewhat  similarly,  in  the  Tower  Oiled  Clothing  Com- 
pany Case  it  was  stated  that,  although  the  discrimination 
involved  in  the  difierence  between  C.L.  and  L.C.L.  rating 
had  received  tacit  assent,  a  shipper  had  not  thereby  the 
right  to  demand  a  lower  rate,  unless  possibly  he  could 
show  that  the  carload  rate  demanded  would  pay  reason- 
ably for  the  service  and  that  a  refusal  would  injure  his 
business.^ 

These  decisions  indicate  that  there  is  considerable  di- 
versity of  view  as  to  the  sanctions  that  govern  the  grant- 
ing of  a  carload  rating,  for  at  least  four  or  five  different 
positions  may  be  deduced  from  these  opinions.  The  out- 
standing fact  is  that  the  Board  has  not  definitely  taken 
the  position  that  the  reduced  cost  of  handling  traflSc  by 
the  carload  warrants  a  carload  rating  when  it  offers  in 
that  quantity.  This  is  the  more  remarkable  when  it  is 
recalled  that  it  has  affirmed  the  principle  that  volume  of 
traflSc  is  a  legitimate  defense  to  the  charge  of  discrimina- 
tion. Not  less  surprising  is  the  weight  given  to  the  effect 
of  granting  carload  ratings  upon  smaller  competitors.  In 
the  Canadian  Oil  Companies,  Limited,  application  for 
low  rate  on  oil  to  Winnipeg,^  the  applicant  pointed  out 

1  1/69. 

^  7/211.  Cp.  Application  of  the  Battle  Creek  Toasted  Corn  Flake 
Co.  for  a  C.L.  minimum  (6/314) ;  also  application  of  Lamontange's  Lim- 
ited (7/187). 


UNJUST  DISCRIMINATION  189 

that  the  Imperial  Oil  Company  could  command  a  lower 
rate  because  it  was  able  to  ship  in  tank  steamers.  To  this 
the  Board  remarked  that  this  was  an  incident  of  large- 
scale  production  and  it  would  not  be  reasonable  to  require 
the  railways  to  offset  this  advantage  by  reductions  in  rates. 
Similarly,  it  has  repeatedly  held  that  it  is  not  the  function 
of  the  Board  to  equalize  costs  of  production.  It  is  rather 
difficult  to  see  how  the  principle  has  been  conserved  in 
these  cases  involving  C.L.  ratings.  Costs  may  be  equal- 
ized upwards  or  downwards  and  to  refuse  a  C.L.  rating  on 
cigars,  which  for  other  reasons  might  validly  be  granted, 
because  it  would  disturb  equalized  costs  of  production, 
savors  of  inconsistency.  This,  indeed,  the  Board  appears 
to  have  recognized,  for  in  the  Ledoux  application  it  re- 
marks :  — 

At  first  flush  it  does  not  appear  reasonable  that  an  applica- 
tion for  a  car-lot  rating  should  not  be  granted  where  it  is  estab- 
lished that  there  would  be  car-lot  movements  of  the  commodity 
in  question. 

In  drawing  attention  to  this  inconsistency  in  holdings, 
the  view  taken  is  not  necessarily  that  reasoned  social  con- 
siderations should  not  be  used  as  criteria  of  judgment, 
but  that  the  Board  has  deviated  in  the  application  of  the 
principles  it  has  itself  laid  down. 

The  basis  of  a  special  charge,  which  has  been  held  not  to 
involve  undue  discrimination,  is  some  special  service  of 
which  the  expense  usually  may  be  easily  segregated  from 
the  main  costs  of  transportation.  Naturally,  under  these 
circumstances  the  Board  has  relied  upon  cost  data  in 
determining  a  proper  charge.  At  the  outset  of  its  activity 
it  laid  down  an  important  ruling;  namely,  that  actual  cost 
should  determine  these  charges,  and  that  the  railroads 
should  not  attempt  to  make  it  the  basis  of  a  charge  for 
profit.  This  principle  was  set  forth  in  disposing  of  a  com- 
plaint of  the  Ontario  Fruit  Growers'  Association  that  the 


190  CANADIiVN  RAILWAY  RATES 

railways  were  making  an  excessive  charge  for  icing  fruit 
in  transit.^  The  Board  held  the  system  of  making  fixed 
charges  for  icing  cars,  irrespective  of  the  actual  cost  of  such 
service,  was  not  based  on  sound  principle,  and  should  be 
discontinued.  In  this  case  the  validity  of  the  extra  charge 
was  not  questioned,  the  complaint  being  upon  the  amount 
and  method  of  assessment.  In  accord  with  this  view, 
when  the  railway  companies  desired  increased  remunera- 
tion for  refrigerator  service  in  1916  the  Board  required 
them  to  file  particulars  of  their  case.  "By  this  I  mean," 
said  the  Chief  Commissioner,  "particulars  of  the  items 
of  cost  they  rely  on  as  justifying  the  proposed  increased 
charges."  ^ 

In  cases  involving  interswitching,^  where  one  company 
is  called  upon  to  deliver  the  cars  of  another  company,  the 
primary  issue  of  an  extra  charge  of  any  kind  was  raised. 
The  principles,  however,  that  ultimately  were  applied  to 
the  amount  of  charge  which  might  be  levied,  were  de- 
veloped in  the  London  Interswitching  Case,'*  which  came 
before  the  Board  precedent  to  the  Interswitching  Rate 
Case  where  the  wider  issues  were  considered.  In  the  Lon- 
don Case  the  Grand  Trunk,  which  had  been  long  estab- 
lished at  London,  possessed  extensive  terminals,  while  the 
Canadian  Pacific,  whose  entry  to  the  city  had  been  more 
recent,  possessed  comparatively  small  facilities.  A  branch 
line  owned  by  the  Grand  Trunk  connected  the  two  sys- 
tems, whereby  the  Canadian  Pacific  was  given  direct  ac- 

^  l/69.  Cp.  the  application  of  the  Canadian  Piano  &  Organ  Manufac- 
turing Association  for  a  direction  to  the  railway  companies  to  install 
heaters  in  box  cars  in  which  musical  instruments  are  shipped  during  the 
winter  months;  "unless  special  remuneration  were  charged  for  such  a 
service,  I  do  not  think  it  would  be  reasonable  for  the  Board  to  order  it." 
6/318. 

2  VI  J.O.R.R.  82.  Cp.  in  the  matter  of  tolls  for  heated  car  service: 
"The  justification  advanced  by  the  railways  for  a  heated  car  service 
charge  is  one  of  cost.  They  ask  simply  for  cost  of  this  service  and  not  for 
a  profit  thereon."   VI  J.O.R.R.  374. 

*  Switching  to  sidings  is  reckoned  on  a  cost  basis.  VI  J.O.R.R.  23. 

*  1/86  fiF. 


UNJUST  DISCRIMINATION  101 

cess  to  a  large  number  of  business  premises  in  London 
which  it  did  not  previously  have.  The  latter  line  applied 
for  an  order  to  compel  the  Grand  Trunk  to  provide  proper 
facilities  for  the  interchange  of  traffic.  It  was  urged  by 
the  Grand  Trunk  that  in  the  event  of  such  an  order  being 
made,  on  account  of  the  greater  advantages  which  would 
accrue  to  the  Canadian  Pacific  under  such  an  arrangement, 
that  it  (the  Grand  Trunk)  should  receive  much  the  larger 
proportion  in  the  division  of  rates  for  the  traffic  exchanged  — 

much  greater  than  that  which  would  be  a  fair  remuneration  for 
the  mere  service  rendered  in  the  transportation  of  cars  over  this 
branch,  and  its  London  terminal  lines  and  the  loading  and  un- 
loading of  the  same. 

The  Board  rejected  this  view  and  declared  that  "rea- 
sonable compensation  for  the  services  and  facilities  fur- 
nished" should  determine  the  division  of  the  joint  rates 
and 

not  by  reference  to  the  magnitude  of  the  business  of  the  company 
or  the  other  at  particular  points,  or  the  respective  advantages 
which  each  can  offer  to  the  other  there,  or  a  comparison  of  the 
loss  the  one  is  likely  to  sustain,  with  the  gain  likely  to  accrue  to 
the  other. 

The  principle  laid  down  here  entered  into  the  decision 
of  the  Board  in  the  Interswitching  Rate  Case,^  where  the 
Canadian  Manufacturers'  Association  complained  that 
the  railways  absorbed  switching  charges  at  competitive 
points,  but  added  it  on  at  non-competitive  points.  The 
Board  ruled:  (1)  that  tariffs  related  only  to  points  on  a 
company's  own  line;^  (2)  that  where  delivery  was  made 
through  the  switching  facilities  of  a  second  company,  a 
reasonable  additional  rate  might  be  collected;  (3)  that 
while  the  company,  carrying  such  traffic  for  the  long  dis- 
tance should  not  be  obliged  to  absorb  the  whole  of  the 
switching  charge,  it  might  not  necessarily  be  debarred 

1  4/214.  2  Following  12  I.C.C.  556. 


192  CANADIAN  RAILWAY  RATES 

from  doing  so,  providing  this  did  not  involve  unjust  dis- 
crimination or  preference,  and  that  in  case  of  competition 
if  it  did  so  absorb  charges  the  charge  of  discrimination 
would  not  lie;  (4)  that  two  companies  where  interswitch- 
ing  was  involved,  might  be  required  to  treat  such  traffic 
as  joint  traffic  and  the  joint  rate  might  be  less  than  the 
sum  of  the  two  rates,  and  that  each  of  the  companies 
might  be  required  to  accept  less  than  its  full  rate. 

This  opinion  is  set  forth  at  some  length  because  it  sum- 
marizes a  number  of  principles  and  positions  that  the  Board 
has  developed  in  other  cases.  The  crux  of  the  matter  lies 
in  the  view  that  interswitching  is  to  be  treated  essentially 
as  joint  traffic  and  to  be  passed  upon  on  the  basis  of 
the  principles  there  developed.^  These  have  been  already 
discussed,  and  it  is  only  necessary  to  remember  that  a 
higher  charge  for  traffic  involving  joint  service  was  justi- 
fied on  a  basis  of  increased  cost.  The  only  difference  is 
that  the  costs  of  interswitching  are  more  capable  of  being 
accurately  determined.  Subsequently  a  standard  tariff 
of  tolls  was  filed.  This  tariff  has  a  maximum  and  minimum 
level  between  which  rates  are  determined  on  the  basis  of 
distance  and  tonnage.^ 

In  1916,  in  a  reconsideration  of  the  General  Interswitch- 
ing order,  it  was  held  that  it  is  not  a  mandatory  order 
requiring  interswitching  wherever  possible,  but  merely  a 
regulative  order  fixing  tolls  to  be  charged  when  the  serv- 
ice is  performed.  A  railroad  if  it  choose  may  cart  goods 
from  an  industry  located  on  a  siding  off  another  railway 
company's  line.  Cartage  equalization  and  the  substitu- 
tion of  cartage  for  interswitching  are  permissible  so  long 
as  the  carrier  complies  with  the  obligation  to  observe 
equality  in  its  treatment  of  shippers.  That  is,  if  it  grants 
free  cartage  to  one  industry  because  it  has  a  siding  off  a 

'  Cp.  10/139. 

^  Circulars  and  General  Orders,  issued  by  the  Board  from  its  inception 
to  October,  1912.  p.  480. 


UNJUST  DISCRIMINATION  193 

rival  road,  it  would  not  be  justified  in  refusing  free  cartage 
to  another  industry  which  possessed  no  siding.^ 

The  Board  has  decided  that  interswitching  in  connec- 
tion with  a  stopover  before  the  final  destination  is  reached 
does  not  come  within  the  scope  of  the  general  order.  This 
naturally  follows  from  the  holding  that  a  stopover  for 
milling  purposes  is  in  itself  a  privilege  and  may  not  be 
ordered  by  the  Board.^  The  only  way  in  which  this  may 
come  before  the  Board  is  where  the  railways  have  volun- 
tarily granted  the  privilege  and  discrimination  has  been 
alleged.^  Certain  grain  elevators  in  Winnipeg  alleged  un- 
due charges  against  the  Canadian  Pacific  Railway  for  the 
delivery  of  grain  from  the  Canadian  Northern  lines  on  the 
stopover  privilege.^  The  Board  said  it  would  be  unfair  to 
require  the  carrier  to  absorb  part  of  a  switching  charge 
in  this  case,  for  it  might  dissipate  the  one  cent  per  hundred 
pounds  which  it  receives  for  granting  the  stopover  privi- 
lege. Similarly,  in  the  Cartier  Stopover  Case,  where  grain 
cars  have  been  consigned  to  Cartier  "For  Orders,"  the 
Board  said  that  this  was  a  substantial  service  entitled  to 
fair  remuneration.^ 

The  use  of  cost  data  to  determine  the  relative  reason- 
ableness of  tolls  permits  of  another  application.  It  has 
been  shown  that  where  the  carriage  of  traffic  involves  a 
special  service  a  higher  charge  has  been  justified.  The 
Board  has  also  had  to  deal  with  cases  where  a  reverse  con- 
dition was  established,  that  is,  where  the  traffic  does  not 
require  the  usual  amount  of  care  and  attention.  The  prin- 
ciple that  where  these  conditions  develop  a  charge  lower 
than  the  standard  level  is  fair  and  just  has  been  estab- 

1  11/271.  2  11/101.  3  14  c.R.C.  346.  «  4/259. 

6  4/256.  Cp.  Rat  Portage  Lumber  Co.  vs.  C.N.  Ry.,  6/215;  Atikokan 
Iron  Co.,  Ltd.,  vs.  C.P.  Ry.,  7/257;  Montreal  Produce  Merchants'  Asso- 
ciation vs.  G.T.  &  C.P.  Rys.,  5/224;  also,  Application  of  Fruit  Growers' 
Association  of  Ontario  for  stoppage-in-transit  privilege  for  fruit,  8/275, 
and  Application  of  the  Board  of  Trade,  Montreal,  for  milling-in-transit  for 
corn,  file  12384;  stopovers  at  Government  storage  elevators,  11/171. 


194  CANADIAN  RAILWAY  RATES 

lished.  The  issue  was  raised  in  the  appHcation  of  the 
Winnipeg  Free  Press  for  a  rate  on  newspapers  lower  than 
the  express  rate  on  ordinary  merchandise  traffic,  to  apply 
on  papers  going  beyond  the  territory  covered  by  a  special 
zone  rate.^  The  Board  reduced  the  rate  to  one-half  mer- 
chandise rates,  basing  the  reduction  upon  a  distinction 
between  this  phase  of  traffic  and  ordinary  merchandise 
traffic: — 

Newspaper  traffic  diflFers  in  a  great  many  ways  from  the  ordi- 
nary merchandise  traffic.  The  newspapers  are  taken  down  to 
the  train  at  the  last  moment  and  put  on  by  agents  or  employees 
of  the  newspapers.  There  are  not  the  expenses  of  delivery  and 
collection  which  apply  to  ordinary  merchandise  traffic,  and  there 
are  not  the  waybilling  expenses  which  also  apply  to  the  ordinary 
merchandise  traffic. 

The  reduction  of  rates  in  this  instance  thus  lies  squarely 
upon  a  cos t-of -service  basis.  Moreover,  the  order  was 
made  general  and  may  therefore  be  accepted  as  a  general 
position  of  the  Board. 

This  completes  the  discussion  of  cost  elements,  arising 
out  of  differences  in  the  conditions  under  which  the  traffic 
is  handled,  which  justify  discrimination  in  charges  for 
carriage.  The  wide  range  of  application,  which  a  study 
of  these  cases  reveals,  indicates  the  importance  of  the 
cost-of-service  principle  in  rate-making  in  Canada.  This 
will  more  clearly  appear  when  its  use  is  compared  with  the 
employment  of  the  value  of  the  commodity  as  a  test  of 
reasonableness. 

§  7.  Quite  in  contrast  to  the  fullness  with  which  con- 
siderations of  competition  and  cost  have  been  treated  by 
the  Board  is  the  relatively  slight  stress  that  has  been 
placed  upon  the  principle  that  the  value  of  the  commodity 
affords  a  basis  for  rate  adjudications.  This  in  itself  does 
not  indicate  of  necessity  a  predilection,  on  the  part  of  the 
Board,  for  the  cost  principle.   As  a  quasi- judicial  body  it 

1  7/287. 


UNJUST  DISCRIMINATION  195 

ordinarily  must  pass  upon  the  issues  as  they  are  presented. 
It  could  hardly  go  outside  of  the  record,  unless  the  case 
warranted  a  special  investigation,  to  seek  factors  upon 
which  to  base  its  decision.  However,  this  does  not  dis- 
pose of  the  comparative  absence  of  the  value  of  the  com- 
modity principle  in  Canadian  rate  litigation,  but  rather 
points  back  to  the  nature  of  the  rate  disputes  themselves. 
A  glance  in  retrospect  at  those  which  have  been  consid- 
ered reveals  that  they  are  largely  concerned  with  the 
broader  issues  involved  in  rate  regulation.  There  have 
been  relatively  few  cases  where  the  issue  has  lain  between 
competing  commodities  or  commodities  in  different  stages 
of  manufacture.  These  are  cases  where  a  very  slight  dif- 
ference in  tolls  on  products  not  unlike  or  which  may  be 
substituted  for  each  other,  might  put  competing  manu- 
facturers at  a  disadvantage  one  to  the  other.  In  cases  of 
this  sort  the  value  of  commodity  principle  becomes  espe- 
cially serviceable  as  a  measure  of  reasonableness  to  prevent 
undue  discrimination.  To  the  comparative  absence  of 
cases  where  the  principle  would  be  useful,  may  be  attrib- 
uted the  secondary  position,  which  in  point  of  fact,  it  oc- 
cupies. 

In  a  study  of  rate  theory,  however,  it  is  not  necessary 
to  rely  upon  a  multitude  of  cases  to  determine  the  general 
attitude  of  the  Board  to  the  principle  involved.  It  may 
fairly  be  said  that  the  Board  has  given  due  weight  to  the 
value  of  the  commodity  principle  when  it  has  been  urged 
as  a  factor  in  the  case.  It  has  laid  down  that  it  is  "ele- 
mentary that  in  order  that  the  cheaper  goods  may  be  car- 
ried any  distance  at  all  the  classification  must  be  arranged 
according  to  the  ability  of  the  various  articles  to  bear  their 
share  of  the  cost  of  transportation,  so  that  luxuries  and 
things  which  move  in  comparatively  small  quantities  are 
rated  higher  than  the  indispensables."  This  amounts  to 
saying  that  goods  of  high  value  shall  pay  a  greater  rate 
for  carriage  than  goods  of  low  value.    In  a  few  cases  ap- 


196  CANADIAN  RAILWAY  RATES 

propriate  to  the  use  of  this  principle  it  has  been  made  the 
controUing  factor.  In  the  application  of  the  Blaugas  Com- 
pany for  a  commodity  rating  on  blaugas  in  cylinders  the 
company  stated  that  it  wished  the  same  rating  as  that 
granted  to  gasoline  with  which  it  enters  into  competition.^ 
The  Board  declared  that  the  justification  of  the  rating 
given  to  blaugas  by  the  railways  as  compared  with  gasoline 
must  rest  on  the  value  of  the  commodities.  A  compari- 
son being  instituted,  it  was  shown  that  the  rates  on  gaso- 
line were  a  higher  percentage  of  the  value  of  the  article 
than  the  rates  on  blaugas  were  to  the  value  of  that  com- 
modity. On  this  finding  the  Board  declined  to  disturb  the 
rate.  "There  is  no  question,"  it  said,  "that  the  pressure 
of  the  freight  rate  is  much  less  in  the  case  of  blaugas." 

In  the  ca^e  of  a  rate  of  forty  cents  a  hundred  on  alfalfa 
meal  from  Enderby,  British  Columbia,  to  Duncan,  Bri- 
tish Columbia,  it  was  shown  that  the  rate  was  very  much 
higher  than  that  on  oil  meal  and  other  grain  products. 
'*As  feed  of  low  value  and  entitled  to  low  classification," 
the  Board  calculated  a  rate  on  the  sum  of  the  locals 
amounting  to  thirty-two  and  a  half  cents  per  hundred, 
which  was  scaled  down  to  a  through  rate  of  thirty  cents  a 
hundred.^  In  an  application  for  the  reduction  of  rates 
on  gravel  from  Fonthill  to  Toronto,  the  value  of  the  com- 
modity was  a  factor  in  the  decision,  the  Board  observing 
that  "sand  is  a  commodity  which  has  a  low  value  in  a 
comparatively  large  bulk.  Consequently  it  cannot  bear  as 
large  a  part  of  general  costs  as  other  more  highly  valued 
commodities."  ^ 

The  general  express  investigation  affords  another  illus- 
tration of  the  Board's  attitude  to  rates  based  on  the  value 
of  the  commodity.'*  Among  other  tariffs  the  express  classi- 
fication contained  a  tariff  of  valuation  charges  on  mer- 
chandise which  was  justified  by  express  companies  as  an 
insurance  charge.  The  Board  concluded  the  valuation 
»  6/339.  2  11/109.  3  10/120.  *  6/295. 


UNJUST  DISCRIMINATION  197 

charges  were  "really  an  extra  toll  for  transportation  de- 
manded by  the  carrier  on  account  of  the  increased  respon- 
sibility it  assumes,"  and  justified  the  principle  of  the  levy 
in  the  following  terms :  — 

There  is  nothing  unfair  in  the  carrier  asking  to  be  paid  more 
for  carrying  a  100-pound  package  one  hundred  miles,  which  is 
worth  $1000  than  would  be  asked  for  the  same  package  worth 
but  $20. 

These  cases  exhibit  the  general  principle  the  Board  has 
accepted  where  value  considerations  have  been  urged. 
Moreover,  as  between  articles  of  value  of  the  same  general 
nature,  as  indicated,  it  has  held  that  a  commodity  con- 
ceded to  be  a  luxury  may  fairly  be  given  a  higher  rate. 
This  teaching  obviously  is  applied  in  the  demand  of  the 
Cut  Glass  Importers,  Limited,  for  a  reduction  in  rating 
from  double  first  class  to  first  class.  ^  It  was  shown  that  the 
latter  was  the  rating  placed  upon  chinaware.  The  Board 
said  that  cut  glass  was  not  in  such  general  use  as  china,  it 
was  an  article  of  luxury  and  could  stand  a  high  rate.  Simi- 
larly in  the  Ledoux  application^  for  a  carload  rating  on 
cigars  one  of  the  factors  in  the  refusal  was  the  view  that 
cigars  were  a  luxury  and  if  the  application  were  granted,  — 

it  might  well  be  contended  that  other  luxuries  now  rated  as  first 
class  should  receive  similar  reductions  in  rates. 

The  Board  has  not,  however,  essayed  the  highly  interest- 
ing task  of  working  out  a  sumptuary  principle  of  rate-mak- 
ing. These  opinions  are  cited  because  they  are  examples 
of  the  general  position  that  the  railways  may  assess  ar- 
ticles of  value  upon  that  basis  without  regard  to  the  cost 
of  carriage. 

There  remains  to  be  considered  in  this  connection  the 
rate  relationship  between  commodities  in  different  stages 
of  manufacture.  While  it  is  true  that  in  many  cases  there 

1  12  C.R.C.  10. 

*  7/ 185.  Cp.  rates  on  cream,  8/11 ;  Seaman  Kent  &  Co.  vs.  C.P.R.,  7/255. 


198  CANADIAN  RAILWAY  RATES 

are  sharp  differences  between  the  form  of  the  raw  ma- 
terial and  the  manufactured  and  partially  manufactured 
goods,  in  other  cases  the  only  change  deemed  pertinent 
to  rate-making  has  been  a  change  in  value.  Consequently 
it  has  become  the  basis  of  defending  any  increased  charge 
which  might  be  levied.  The  prevalence  in  Canada  of  the 
milling-in-transit  privilege  has  undoubtedly  reduced  the 
number  of  appeals  under  this  head.  Few  cases  have  come 
before  the  Board  and  in  most  instances  the  value  of  com- 
modity principle  can  only  be  inferred  from  the  holding; 
rarely  has  it  been  explicitly  stated. 

A  notable  decision  occurred,  however,  in  regard  to  the 
classification  of  tin  plate  and  metallic  shingles  and  sidings. 
This  question  was  before  the  Board  twice,  and  on  the  latter 
occasion  the  former  decision  was  reversed.  For  over  ten 
years  tin  plate  was  classified  in  the  seventh  class,  while 
metallic  shingles  and  siding  paid  the  higher  rate  of  fifth 
class.  In  1905  the  railroads,  claiming  that  this  classifica- 
tion was  a  mistake,  advanced  the  finished  product  to  the 
fifth  class  also.  Thereupon  the  Canadian  Manufacturers' 
Association  appealed  to  the  Board  against  the  change,  and 
their  appeal  was  allowed,  on  the  ground  that  the  former 
rate  had  been  in  existence  many  years  and  that  the  rail- 
ways had  not  rebutted  the  presumption  that  the  arrange- 
ment was  reasonable.^  While  basing  the  judgment  upon 
the  long  continuance  of  the  rate  the  Board  said  the  arrange- 
ment was  really  illogical :  — 

Having  reference  to  the  nature  of  the  commodity  in  question 
if  the  work  of  classification  was  now  being  undertaken  for  the 
first  time  these  articles  would  naturally  fall  within  the  fifth 
class.  2 

Or,  as  subsequently  interpreted,  the  Board's  position 
on  this  occasion  was  that  if  the  railways  chose  to  be  illogi- 
cal, without  causing  undue  discrimination  or  hurting  other 
interests,  there  was  no  necessity  "for  the  Board's  inter- 

1  4/148.  2  Cp.  9/271. 


UNJUST  DISCRIMINATION  199 

vention  as  a  mere  arbiter  of  logic."  It  was  precisely  on  the 
point  of  undue  discrimination  that  the  question  was  raised 
again.  ^  Metalhc  shingles  and  siding  are  largely  used  in 
the  construction  of  grain  elevators  and  a  manufacturing 
industry  had  grown  up  at  Winnipeg  despite  the  disad- 
vantage of  importing  raw  material  at  higher  rates  than 
the  finished  product.  In  1909  this  interest  appealed  to  the 
Board  to  equalize  rates  on  the  manufactured  commodity 
as  against  that  charged  on  the  unmanufactured  material. 
Holding  that  the  establishment  of  an  industry  at  Winni- 
peg had  materially  changed  the  situation,  the  Board  re- 
scinded the  former  order.  In  arriving  at  this  conclusion, 
the  Board  naturally  discussed  the  principles  that  obtain  in 
the  classification  of  raw  and  finished  goods : — 

It  is  a  natural  trade  condition  for  manufacturers,  conditions 
of  capital  and  demand  being  satisfactory,  to  carry  forward  the 
raw  material  to  the  p>oLnt  most  economically  adjacent  to  the 
centers  of  demand  and  there  manufacture  it.  Normally  this 
means  that  the  long  haul  of  the  raw  material  is  at  a  low  rate, 
while  a  higher  rate  is  on  the  finished  material  from  point  of  manu- 
facture to  point  of  destination.  Sometimes  both  the  raw  and 
finished  material  may  be  in  the  same  class.  To  find  the  raw  mate- 
rial classed  higher  is  abnormal. 

It  will  be  noted  that  the  analysis  is  not  carried  beyond 
''natural  trade  conditions,"  so  that  the  justification  of  a 
lower  rate  upon  unmanufactured  material  cannot  be  ex- 
plicitly assigned  as  being  due  to  a  change  in  the  value  of 
the  commodity. 

Similarly,  in  an  application  of  the  Transportation 
Bureau  of  the  Montreal  Board  of  Trade  for  an  order  to 
adjust  the  rates  on  corn  and  cornmeal  so  that  the  combina- 
tion rate  on  com  milled  at  Montreal  under  the  milling-in- 
transit  privilege  to  St.  John  should  not  exceed  that  avail- 
able to  any  Ontario  mill,^  the  opinion  of  the  Board  is 
only  logical  on  the  supposition  that  it  is  using  value  as  a 

1  5/262.  2  7/253. 


200  CANADIAN  RAILWAY  RATES 

criterion.  The  Board  said  that  the  apphcation  was  im- 
practicable because,  in  one  instance,  — 

while  the  mileages  may  be  the  same  there  is  in  the  first  place  a 
relatively  short  haul  of  the  raw  material  and  a  long  haul  of  the 
finished  material,  while  the  conditions  difler  somewhat  in  the 
case  of  the  product  milled  at  Montreal. 

Moreover,  the  fact  that  in  both  these  instances  the 
Board  disclaimed  any  intention  of  directing  trade  devel- 
opment, strengthens  the  conclusion  that  difference  in 
value  between  the  finished  and  unfinished  commodities 
was  the  underlying  consideration.  Such  a  position  is  in 
harmony  with  the  Board's  general  attitude  to  value  as  a 
factor  in  rate-making,  as  it  has  been  set  forth. 

The  relatively  unimportant  part  that  the  principle  has 
played  is  apparently  due,  as  an  examination  of  cases  where 
the  factor  was  considered  suggests,  to  the  nature  of  the 
cases  adjudicated,  rather  than  to  any  unwillingness  on 
the  part  of  the  Board  to  recognize  it  as  a  proper  basis  for 
rate-making. 


CHAPTER  VIII 

RATE   THEORIES  AND   PUBLIC   POLICY 

§  1.  The  Dominion  Parliament  in  defining  the  duties 
of  the  Board  laid  upon  it  the  obhgation  of  disallowing 
"any  tariff  or  any  portion  thereof"  which  it  considered 
to  be  unjust  or  unreasonable.  This  grant  of  power  natu- 
rally grew  out  of  the  fact  that  the  Board  took  over  the 
general  powers  of  supervision,  subject  only  to  a  right  of 
appeal,  which  general  acts  had  formerly  vested  only  in 
the  Privy  Council.  This  general  clause  has  acted  as  a 
dragnet  for  bringing  rate  grievances  to  the  consideration 
of  the  Board  that  could  not  well  be  brought  either  on  a 
charge  being  unreasonable  in  itself  or  on  the  basis  of  undue 
discrimination.  In  accord  with  the  legal  canons  of  inter- 
pretation, it  has  been  construed  with  reference  to  the  text 
of  the  act,  so  that  the  additional  relief  that  it  affords  has 
been  more  illusory  than  real.  In  general,  cases  argued  on 
this  basis  arise  out  of  the  refusal  to  continue  some  rate 
privilege  which  it  was  in  the  discretion  of  the  railway  to 
grant  or  withhold  in  the  first  place.  As  these  privileges 
usually  touch  the  development  of  industry  and  commerce 
the  Board  in  passing  upon  them  must  frequently  base  its 
decision  upon  the  broader  consideration  of  commercial 
policy.  On  this  account  it  has  been  deemed  wise  to  bring 
together  various  decisions  of  the  Board  which  relate  to 
commerce  although  all  of  them  do  not  rest  on  this  section 
of  the  act.  In  general  these  decisions  may  be  viewed  from 
the  standpoint  of  their  effect  on  industry  and  traffic,  or  in 
other  words  their  effect  upon  industrial  development  and 
more  specifically  their  effect  upon  the  business  of  trans- 
portation itself. 


202  CANADIAN  RAILWAY  RATES 

It  is  not  necessary  here  to  delve  into  the  considerations 
that  lead  the  railroads  to  make  rates  sufficiently  low  to 
permit  the  development  of  industries  along  their  lines. 
The  interest  lies  in  the  attitude  of  the  Board  of  Railway 
Commissioners  to  these  developmental  rates.  In  a  young 
country,  such  as  Canada,  where  the  conditions  are  seem- 
ingly ripe  for  industrial  development  at  many  points,  the 
question  is  of  the  greatest  importance.  The  ability  to  per- 
suade industrial  or  commercial  interests  to  center  at  one 
point  in  preference  to  another  begets  rivalries  even  more 
acute  than  those  engendered  in  the  struggle  to  maintain 
that  which  has  been  already  won.  Moreover,  this  strug- 
gle for  initial  advantage  is  aggravated  by  real  estate  spec- 
ulation, a  phenomenon  which  usually  companions  any 
attempt  to  develop  a  place  into  an  industrial  or  distribu- 
tive center.  It  is  therefore  not  a  matter  for  surprise  that 
inconcurrencies  of  judgment  should  frequently  develop 
between  a  naturally  sanguine  local  interest  and  the  more 
cold-blooded  traffic  official.  Under  the  circumstances  the 
obvious  course  of  action  is  to  appeal  to  the  Board,  and  it 
does  not  require  any  great  gift  of  imagination  to  foresee 
the  responsibility  that  would  accrue  if  the  Board  had 
jurisdiction  over  the  granting  of  developmental  rates. 

As  a  matter  of  fact  the  Board  has  repeatedly  declared 
that  it  does  not  consider  it  within  the  scope  of  its  juris- 
diction to  equalize  the  costs  of  production  as  between 
different  markets  or  producing  points.^  It  has  defined  its 
attitude  as  holding  the  balance  true  between  shipper  and 
carrier  with  respect  to  the  particular  freight  movement  in 
question  and  without  regard  to  its  largier  social  effects.^ 
In  denying  the  application  of  the  Canadian  Oil  Companies, 
Limited,  for  a  reduced  rate  on  oil  from  Petrolia,  Ontario, 
to  Winnipeg,  Manitoba,  the  judgment  Commissioner 
said :  — 

1  6/340,  7/21ie.  7/246,  10/124,  10/345;  VI  J.O.R.R.  267;  5/231. 

2  7/210. 


RATE  THEORIES  AND  PUBLIC  POLICY       203 

While  personally  I  have  sympathy  with  the  "territorial  sec- 
tarianism" which  desires  industries  to  be  established  in  one's 
own  country  in  preference  to  a  foreign  country,  the  matter  of 
sympathy  affords  no  justification  for  the  reduction  asked.^ 

This  position  the  Board  has  decisively  taken  when  con- 
fronted with  arguments  maintaining  the  justice  of  ma- 
nipulating railway  rates  in  the  interests  of  commercial 
development.  Thus,  to  cite  another  instance  of  a  similar 
nature,  when  the  Farmers'  Dairy  and  Produce  Company 
applied  for  a  through  rate  for  the  carriage  of  milk  for  de- 
livery to  a  connecting  express  company  in  the  United 
States,  the  Board  overruled  the  Canadian  Pacific  Rail- 
way's objection  that  it  did  not  wish  the  traffic  except  at 
full  tariff  tolls  but  suspended  operation  of  the  order  pend- 
ing proof  that  a  toll  had  been  agreed  upon  with  the  foreign 
carrier.  "Commercial  considerations,"  it  said,  "are  en- 
tirely outside  of  the  question  as  the  Board  should  con- 
sider it."  2 

Its  more  general  application  to  industry  appears  in  sev- 
eral cases,  two  of  which  came  before  the  Board  in  the  first 
year  of  its  existence.  These  opinions  are  important  be- 
cause of  the  wide  range  of  principle  which  they  cover,  and 
taken  together  they  serve  to  define  the  general  position  of 
the  Board  to  industrial  development.  A  clause  in  the  rail- 
way act  provides  that  the  Board  may  make  concessions 
from  current  rates  on  materials  for  the  construction  and 
the  machinery  for  the  equipment  of  new  industrial  plants. 
The  Canadian  Freight  Association,  on  behalf  of  the  rail- 
ways of  Canada,  applied  for  a  general  order  from  the  Board 
to  give  effect  to  this  privilege.^  They  alleged  it  was  cus- 
tomary to  grant  a  reduction  of  twenty-five  per  cent  on 
such  freight.  The  Board  interpreted  the  clause  as  being 
introduced  to  give  a  certain  elasticity  to  the  Board's  deci- 
sions in  regard  to  discrimination,  but  declared  that  if  given 
general  effect  it  feared  it  would  open  the  door  to  discrim- 

1  7/210.  2  17  C.R.C.  106.  ^  i/gg. 


204  CANADIAN  RAILWAY  RATES 

inating  rates  between  shippers  of  the  merchandise  affected.* 
As  a  question  of  "very  considerable  magnitude  and  im- 
portance" the  Board  denied  the  order,  holding  due  effect 
would  be  given  to  the  clause  by  a 

separate  and  distinct  application  in  such  case,  so  as  to  judge  of 
the  effect  of  its  order  upon  other  industries,  shippers,  and  dealers. 

On  the  same  day  it  rejected  an  application  of  the  Grand 
Trunk  Railway  for  permission  to  continue  a  difference  in 
the  rate  of  freight  on  bituminous  coal  of  ten  cents  per  ton 
in  favor  of  manufacturers  as  compared  with  that  charged 
to  dealers  or  consumers. ^  The  company  claimed  that  cer- 
tain manufacturers  would  be  unable  to  pay  the  higher  rate 
and  carry  on  business  successfully.  The  Board  refused  to 
attach  weight  to  this  consideration :  — ■ 

Even  if  proved,  the  reduction  could  not  be  allowed.  The  allow- 
ance of  a  reduction  in  the  freight  rate  of  any  article  of  merchan- 
dise to  one  class  of  shippers,  and  the  refusal  of  the  same  rate  to 
another  class  is  unjust  discrimination. 

In  the  complaint  of  the  Board  of  Trade  of  Portage  la 
Prairie  against  the  rates  given  to  the  jobbing  houses  of 
Winnipeg  which  enabled  them  to  "scoop  the  business" 
of  distribution  at  the  expense  of  other  towns,  the  tariffs 
were  disallowed  as  unjustly  discriminative.^  In  this  case 
the  evidence  showed  that  the  Canadian  Pacific  issued  a 
series  of  special  freight  tariffs  and  that  no  one  outside  of 
those  whose  names  appeared  upon  a  certain  list  of  whole- 
sale merchants  could  ship  goods  at  the  rates  mentioned 
in  these  tariffs.  The  list  was  furnished  to  the  railway.  The 
disallowance  of  this  advantage  hit  the  Winnipeg  interests 
quite  severely  and  they  brought  the  issue  before  the  Board 
again  in  the  Winnipeg  Rate  Case.*  The  Winnipeg  Job- 
bers' Association  applied  for  the  restoration  of  the  same 
rates  out  of  Winnipeg  as  had  hitherto  existed,  on  the 
ground  that  the  railways  must  show  cause  why  a  rate 
»  Cp.  11/259,  2  1/70.  3  4/265.  «  4/263. 


RATE  THEORIES  AND  PUBLIC  POLICY       205 

presumably  reasonable  should  be  advanced.  The  Board 
denied  the  application,  holding  that  no  presumption  at- 
tached because  the  local  rates  substituted  on  the  order  of 
the  Board  could  not  properly  be  compared  with  the  balance 
of  the  through  rates  which  preceded  them.  In  this  instance 
it  was  clearly  recognized  that  the  aim  of  the  railway  was 
to  assist  in  establishing  Winnipeg  as  a  distributing  center. 

The  real  issue,  so  far  as  this  study  is  concerned,  how- 
ever, is  the  degree  to  which  the  railways  may  exercise  dis- 
cretion, in  granting  commodity  rates.  These  cases  simply 
indicate  the  limitations  of  a  general  nature  which  the 
prohibition  of  undue  discrimination  places  upon  the  rail- 
ways. In  brief,  the  railroads  may  not  grant  special  privi- 
leges to  manufacturers  as  distinct  from  other  groups  of 
shippers,  nor  may  they  grant  special  privileges  to  certain 
cities  or  towns  where  it  can  be  shown  an  injury  is  thereby 
worked  to  other  towns  and  cities  not  so  favored.^  The 
positive  side  of  the  Board's  decisions  remains  to  be  de- 
veloped, and  that  must  be  considered  before  final  con- 
clusions may  be  drawn. 

While  the  Winnipeg  Rate  Case  indicated  that  the  Board 
would  not  validate  rate  preferences  adventitiously  ac- 
quired, yet  the  general  question  of  the  Board's  powers  in 
regard  to  control  over  commodity  rates  was  not  determined. 
That  question  was  reserved,  for  the  Board  recognized  the 
technical  nature  of  the  factors  upon  which  its  decision  had 
turned  but  gave  a  lead  as  to  its  views  with  respect  to  the 
really  vital  issue  in  the  case.  In  discussing  the  argument 
of  the  counsel  for  the  applicants  the  Chairman  of  the 
Board  said:  — 

Mr.  Chrysler  takes  the  position  that  the  Board  cannot  order 
the  railway  company  to  grant  every  locaUty  and  every  place  a 
commodity  rate.  As  to  that,  I  am  rather  incHned  to  the  view  that 
his  contention  is  right.  I  do  not  finally  dispose  of  it  at  the  mo- 
ment, but  it  seems  to  me  off-hand  that  it  is  the  railway  compa- 

1  VI  J.O.R.R.  40;  11/277. 


206  CANADIAN  RMLWAY  RATES 

nies  that  have  the  right  to  frame  their  tariff.  The  board  does  not 
frame  the  tariff,  and  the  public  does  not  frame  the  tariff;  the 
statute  gives  the  railway  company  the  right  to  frame  its  tariffs. 
And  while  the  statute  gives  certain  control  over  the  tolls  to  the 
Board  of  Railway  Commissioners,  it  does  not  by  any  means  put 
the  Board  in  the  position  of  being  able  to  in  all  cases  control  the 
carrier  in  the  fixing  of  his  tolls.  I  am  inclined  to  the  view  that  the 
carrier  has  the  right  under  the  statute  to  name  the  localities  as 
to  which  commodity  rates  may  be  granted,  but  as  to  that  I  do 
not  express  any  conclusive  opinion. 

This  informal  opinion  hardened  into  a  definite  holding 
in  the  Brampton  Commutation  Rates  Case.^  Brampton 
is  21.1  miles  from  Toronto,  Oakville  is  21.14.  To  the 
latter  point  the  Grand  Trunk  Railway  sold  commutation 
tickets  much  below  the  regular  rates.  The  same  privilege 
had  been  extended  at  one  time  to  Brampton,  but  was 
withdrawn,  in  part  because  of  the  opposition  of  the  mer- 
chants of  the  town.  Later  a  resident  of  Brampton  applied 
for  an  order  to  direct  the  railway  company  to  sell  him 
tickets  at  the  same  rate  as  citizens  of  Oakville  could  obtain 
them.  In  refusing  to  grant  the  order  the  chairman  set  forth 
the  policy  of  the  Board  in  clear  terms :  — 

The  act  recognizes  the  right  of  a  railway  to  discriminate  be- 
tween points;  it  is  only  unjust  discrimination,  or  imdue  prefer- 
ence that  the  company  is  required  to  clear  itself  from.  . .  .^  It  may 
be  that  Oakville  has  to  a  small  extent  profited  by  these  reduced 
fares;  it  may  be  that  Brampton  would  profit  to  an  equal  or  greater 
degree,  if  they  were  in  force  between  Toronto  and  that  town;  but 
the  question  is  whether  Oakville  has  profited  at  the  expense  of 
Brampton,  and  I  am  of  the  opinion  that  such  has  been  shown  not 
to  be  the  case. 

This  decision  was  given  in  1908.  Two  years  later  the 
city  of  Toronto  and  the  town  of  Brampton  revived  the 
question,  and  it  again  came  before  the  Board  in  a  general 
form.^  Comparisons  were  instituted  between  the  practice 
of  the  railways  at  Montreal,  and  it  was  also  shown  that 
1  4/245.  2  Cp.  10/197  S.  «  6/166. 


RATE  THEORIES  AND  PUBLIC  POLICY       207 

commutation  rates  were  in  force  in  and  out  of  Toronto 
from  forty-two  stations.  The  Board  again  denied  the  ap- 
plication on  the  basis  estabhshed  in  the  previous  opinion, 
and  reiterated  the  position  there  assumed:  — 

We  are  not  of  the  opinion  that  because  a  railway  company  or 
railway  companies  operating  into  and  out  of  Montreal  give  com- 
mutation rates,  therefore  they  are  compelled  to  give  them  into 
and  out  of  Toronto.  Why  particularly  Toronto?  Why  not  Ham- 
ilton, why  not  London,  why  not  Kingston,  why  not  Winnipeg, 
and  every  other  city  throughout  the  whole  Dominion?  And  why 
stop  at  cities?  Why  let  the  cities  discriminate  against  the  towns? 
Why  not  into  and  out  of  every  town?  Why  should  rates  be  cut 
into  and  out  of  cities  and  not  into  and  out  of  towns?  And  why, 
forsooth,  stop  at  towns?  Why  not  the  villages?  And  in  the  end 
it  would  result  in  their  discriminating  in  favor  of  certain  locali- 
ties, cities,  towns,  or  villages,  or  it  would  result  in  cutting  down 
the  lawful  railway  fare  to  six-tenths  of  a  cent  between  all  the 
stations  in  Canada. 

This  position  the  Board  has  consistently  maintained, 
and  has  denied  applications  for  commutation  rates  from 
St.  Hyacinthe  to  Montreal  and  from  Lachute  to  the  same 
city.^  In  the  Telegraph  Tolls  Case  the  Board  declared  that 
"the  ultimate  test  of  discrimination  is  to  be  found  not  in  a 
difference  of  rates,  but  in  the  question  whether  as  a  result 
of  this  difference  an  injury  is  worked  to  an  individual  or  a 
locality."  ^  This  principle  received  application  in  con- 
nection with  a  special  freight  tariff  filed  by  the  Canadian 
Northern  Railway  from  Toronto  to  Regina  on  tank  and 
steel  structural  material.  The  Imperial  Oil  Company, 
planning  to  erect  a  refinery  at  Regina,  desired  to  fabricate 
the  steel  materials  necessary  at  their  plant  in  Sarnia.  They 
approached  the  Pere  Marquette  Railway  to  secure  a 
special  rate  from  it  of  seventy-five  cents  to  Regina.  This 
was  promised,  but  when  the  material  was  ready  for  move- 
ment the  Pere  Marquette  declined  to  maintain  the  rate. 
The  Canadian  Northern  Railway  then  filed  a  special  tariff 
1  17  C.R.C   88;  9/295.  ^  VI  J.O.R.R.  40. 


208  CANADIAN  RAILWAY  RATES 

of  58^  cents  from  Toronto  applicable  only  to  shipments 
originating  at  Sarnia.  This  rate,  plus  the  16|-cent  estab- 
lished rate  from  Sarnia  to  Toronto,  would  give  the  required 
75 -cent  rate.  Western  interests  objected,  but  the  Canadian 
Northern  Railway  pleaded  that  it  needed  the  revenue, 
some  five  thousand  tons  of  freight  being  involved,  and 
sought  to  sustain  the  tariff  as  a  competitive  freight  tariff. 
The  Board  ruled  that  Canadian  lines  had  the  right  to 
differentiate  any  rates  only  to  the  extent  necessary  to 
meet  the  advantages  enjoyed  by  one  company  over  the 
other  that  a  shorter  mileage  created.  Carriers  could  not  go 
further.  Pointing  out  that  there  were  plants  at  Winnipeg 
the  Board  said:  — 

While  this  is  true,  no  new  tariff  structure  can  be  justified,  the 
effect  of  which  would  be  to  favor  the  Eastern  fabricator  of  iron 
and  steel  as  against  his  Western  competitor  in  the  Western  mar- 
ket. ^ 

The  opinions  of  the  Board  in  the  matter  are  set  forth 
with  some  length,  not  only  because  they  exhibit  the  de- 
velopment of  a  policy,  but  also  because,  however  heroic 
and  irrefragable  the  logic  may  appear,  even  with  the  limita- 
tions made  in  the  last  case  considered,  it  must  be  apparent 
that  under  these  decisions  the  railways  may  exercise  very 
considerable  discrimination  in  the  granting  of  special  fa- 
vors. The  latitude  of  the  railways  is  recognized  by  the 
Board:  — 

Now,  if  the  railway  companies  have  exercised  the  discretion 
that  the  statute  has  conferred  upon  them  in  naming  these  points 
to  which  they  will  grant  commutation  rates,  they  are  within 
their  rights,  in  naming  those  or  any  other  points  they  choose. 
That  discretion  is  not  to  be  interfered  with  unless  it  operates  un- 
justly or  undue  preference  or  discrimination  follows.  .  .  .  But 
after  all  it  must  be  left  largely  to  the  good  sense  of  those  who  are 
in  the  control  of  the  railway  facilities  as  to  what  services  can  be 
afforded  and,  within  reason,  what  the  tolls  shall  be. 

1  11/277. 


RATE  THEORIES  AND  PUBLIC  POLICY       209 

Naturally  this  holds  even  more  truly  if  the  connection 
between  certain  desirable  social  or  industrial  conditions  and 
enhanced  railway  returns  are  somewhat  remote.  Thus, 
in  regard  to  movements  of  gravel  to  points  in  the  coun- 
ties of  Lambton,  Kent,  Essex,  and  Middlesex,  Ontario, 
an  appeal  was  made  to  the  Board  to  obtain  low  commod- 
ity rates  so  as  to  enable  the  many  municipalities  affected 
to  proceed  with  the  work  of  general  road  improvement 
at  a  reasonable  expense.  The  Board  remarked  that  the 
great  public  necessity  of  improving  the  highways  in  the 
interested  counties  had  been  made  abundantly  clear,  as 
well  as  the  great  corresponding  benefit  that  good  roads 
would  mean,  not  only  to  the  farmers  in  the  first  instance 
using  them,  but  also  to  all  kinds  of  industry  including  the 
railways.  Nevertheless,  the  Board  found  it  impossible  to 
order  lower  rates  for  the  railroads.  "It  is  impossible  for 
the  Board  to  say  that  the  rates  proposed  by  the  railways  on 
gravel  are  excessive  or  unfair.  The  Board  is  bound  to  go 
this  length  before  interfering."  ^ 

It  need  scarcely  be  pointed  out  that  the  Board  will  not 
order  a  developmental  rate.  The  point  was  tersely  put  by 
the  Board  in  refusing  an  application  of  the  British  Colum- 
bia News  Company,  Limited,  for  a  low  rate  on  magazines 
and  periodicals  out  of  Vancouver:  — 

It  is  not  the  Board's  function,  as  delegated  by  Parliament,  to 
make  rates  to  develop  business,  but  to  deal  with  the  reasonable- 
ness of  rates  either  on  complaint  or  of  its  own  motion. ^ 

The  holdings  in  the  China  Clay  Case  and  in  the  Ed- 
monton Clover  Bar  Company  Case,  already  discussed  in 
another  connection,  indicate  clearly  the  Board's  hmita- 
tions  here.  If  the  railroad  is  guilty  of  an  error  of  judgment 
in  not  granting  a  developmental  rate,  the  Board  cannot 
rectify  that  error.  The  railway  may  suffer;  the  public  must. 
It  is  a  "  question  for  the  railway  company  itself  to  decide."  ' 
»  11/147.  2  7/35.  Cp.  3/149.  3  17  C.R.C.  95. 


210  CANADIAN  RAILWAY  RATES 

Thus  the  Board  said  with  respect  to  the  effect  of  the 
Panama  Canal  upon  water  rates  to  the  West:  — 

There  is  no  doubt  whatever  but  that  rates  which  the  railway 
companies  may  make  for  the  purpose  of  enabling  manufacturers 
and  shippers  in  Ontario  and  eastern  Canada  generally  to  con- 
tinue to  do  business  as  in  the  past  appear  to  be  a  national  neces- 
sity; whether  such  rates  are  or  are  not  put  in,  is  a  matter  en- 
tirely for  the  railways.  They  cannot  be  ordered  by  the  Board. ^ 

Another  phase  of  developmental  rates  has  come  before 
the  Board  at  various  times  that  is  worthy  of  notice;  that  is 
in  cases  where  certain  commodities  may  be  used  for  several 
purposes,  but  where  a  certain  use  requires,  if  the  industry 
is  to  develop,  lower  rates  than  is  generally  granted.  For 
instance,  the  Board  in  dealing  with  rates  on  cream  was 
urged  to  give  a  lower  rate  in  cream  used  for  butter-mak- 
ing than  for  domestic  use.  In  the  Express  Case  this  was 
granted,  but  the  matter  coming  again  before  the  Board  a 
uniform  tariff  was  authorized.  The  Board,  in  reconsidering 
the  difficulties  of  a  dual  system  of  tariffs,  decided  that  the 
question  at  issue  should  properly  follow  the  early  ruling  of 
the  Board  that  there  should  be  no  reduction  in  rates  upon 
coal  for  manufacturing  purposes.  It  gave  judgment  accord- 
ingly. ^ 

In  other  cases  the  same  disposition  of  the  problem  has 
been  made.  The  complaint  of  the  Western  Retail  Lumber- 
men's Association  of  Canada  against  an  increase  in  car- 
load minimum  on  brick  from  40,000  to  50,000  pounds  over 
lines  in  Western  Canada  was  dismissed.  The  applicants 
set  out  that  the  demand  in  small  towns  for  brick  was  very 
light  and  that  a  50,000  minimum  would  mean  it  would  take 
more  than  one  season  to  dispose  of  a  carload.  The  Board 
answered  that  the  freight  rate  was  only  one  item  in  the 
shipper's  cost  and  a  railway  company  was  not  called  upon 
so  to  adjust  its  rates  that  the  shipper  would  always  be  able 

»  11/184.  *  8/11. 


RATE  THEORIES  AND  PUBLIC  POLICY       211 

to  carry  on  his  business  at  a  profit.  Similarly  Messrs.  Hay 
&  Company,  of  Woodstock,  were  unable  to  secure  a  re- 
duced minimum  on  logs  used  in  manufacturing  handles 
and  veneering.  ^  For  the  same  reason  the  Shingle  Agency 
of  British  Columbia  was  not  permitted  to  load  a  comple- 
ment of  nails  with  shingle  shipments.^ 

With  respect  to  the  milling-in-transit  privilege,  the 
Board  has  repeatedly  held  that  it  is  unable  to  order  that 
it  be  granted  unless  discrimination  can  be  shown.  It  may 
only  come  within  its  jurisdiction  if  it  discriminates  against 
anybody.  "After  all,  the  milling-in-transit  privilege  is  just 
what  it  says.  It  is  a  privilege  and  not  a  right."  ^  Thus, 
to  eliminate  discrimination,  the  Board  required  a  milling- 
in-transit  rate  to  be  given  at  Sudbury  in  connection  with  the 
grain  movement,  but  it  held  for  there  to  be  such  an  exten- 
sion the  privilege  must  have  been  granted  "  at  other  points 
under  exactly  the  same  conditions  and  circumstances  and 
exactly  for  the  same  industry."  Under  this  ruling  a  mill- 
ing-in-transit rate  was  refused  to  the  Sudbury  Brewing 
and  Malting  Company.  Although  a  milling-in-transit  rate 
was  granted  for  grain  offal  from  flour  mills,  it  was  refused 
to  the  brewery.  In  the  case  of  the  flour  mill,  the  Board 
said,  the  by-product  obtained  it  because  the  main  product 
had  it,  the  greater  including  the  less,  but  in  this  instance 
the  applicant  asked  for  transit  on  the  by-product  when 
there  was  no  transit  privilege  on  the  main  product  —  the 
beer.  Similarly,  the  Board  refused  to  order  the  railroads 
to  grant  the  stopover  privilege  to  the  Shingle  Agency  of 
British  Columbia,  although  in  Eastern  Canada  lumber  is 
permitted  to  be  stopped  in  transit  for  dressing,  resawing  or 
sorting  and  reshipment  on  a  milling-in-transit  rate.^  The 
clue  to  the  strictness  with  which  discrimination  is  con- 
strued in  these  instances  is  to  be  found  in  opinion  of  the 
Chief  Commissioner  in  the  Sudbury  Case:  — 

1  VI  J.O.R.R.  480.  See  ante.  p.  158  ff.   ^  VI  J.O.R.R.  457. 
3  11/101  ff.  *  VI  J.O.R.R.  489. 


212  CANADIAN  RAILWAY  RATES 

If  the  brewer  is  discriminated  against  why  not  the  manufac- 
turer of  sugar  beets  or  starch?  Why  should  not  the  sugar  beet 
manufacturer  get  the  special  privilege  on  his  dried  beet  pulp 
which  may  be  used  for  feed  purposes,  or  the  starch  manufacturer 
get  the  low  rate  on  the  by-products  of  the  corn  which  he  has 
brought  into  his  factory,  and  which  again,  may  be  used  for  the 
purposes  of  feed?  ^ 

In  brief,  to  grant  the  recognition  of  discrimination 
between  different  businesses  would  carry  the  privilege  to 
such  a  point  as  to  make  inroads  on  the  revenue  of  the 
company  as  well  as  to  take  a  large  discretion  out  of  the 
power  of  the  railway  manager.  The  reasoning  which  led  to 
the  rejection  is  closely  analogous  to  that  employed  in  the 
Brampton  Commutation  Rates  Case.^  On  the  surface  some 
objection  might  be  taken  to  the  views  set  forth  by  the 
Board.  It  might  appear  that  desirable  social  ends  could 
be  obtained  by  a  somewhat  broader  interpretation  of  the 
act.  Three  objections,  however,  stand  out.  In  the  first 
place,  the  scope  of  the  Board  is  corrective  and  amenda- 
tory. It  has  no  general  warrant  from  Parliament  to  act 
as  Providence  in  the  control  of  commerce  in  so  far  as  it 
can  be  influenced  by  transportation  costs.  Secondly,  if  it 
exercised  large  discretionary  powers  of  this  nature  it  would 
tend  to  undermine  the  responsibility  of  the  railway  mana- 
ger. Finally,  even  if  it  did  have  the  power  to  order  rates 
that  would  tend  to  equalize  costs  and  thus  to  permit  cer- 
tain lines  of  industry  to  develop,  it  would  be  doing  so  at 
the  expense  of  other  industries:  directly,  in  that  favored 
industries  would  not  be  contributing  their  due  share  to 
fixed  costs,  and  indirectly,  by  deflecting  the  flow  of  raw 
product  to  less  advantageous  uses.  These  undoubtedly 
are  weighty  reasons  for  the  limited  discretion  assumed  by 
the  Board  in  problems  of  this  nature.  They  are  based, 
fundamentally,  however,  on  a  laissez-faire,  pecuniary 
point  of  view.^ 

»  11/102.  2  Ante,  p.  207.  «  Post,  p.  224. 


RATE  THEORIES  AND  PUBLIC  POLICY       213 

Tariffs,  it  is  true,  may  be  ordered  to  be  prepared  in  cer- 
tain circumstances  for  certain  routes  as  distinguished  from 
the  reduction  or  readjustment  of  existing  rates.  But  the 
fact  that  the  Board  orders  such  tariffs  to  be  installed  does 
not  necessarily  prove  that  it  is  encroaching  upon  the  car- 
rier's right  to  initiate  rates.  Cases  of  this  sort  typically 
mean  that  the  railway  has  failed  to  extend  a  rate  of  general 
applicability  to  a  certain  section  of  its  line.  Thus,  when 
the  Riverside  Lumber  Company,  Limited,  complained  of 
the  rates  charged  by  the  Canadian  Pacific  on  lumber  on 
its  Weyburn-Lethbridge  branch  from  Viceroy  to  Assini- 
boia,  the  Board  held  that  once  a  line  was  opened  for 
traffic,  delay  in  installing  general  rates  created  unjust 
discrimination.^  The  extension  of  a  rate  to  eliminate  un- 
just discrimination  is  quite  different  from  ordering  the  in- 
stallation of  the  rate  in  the  first  place,  and  leaves  the  rail- 
way's power  in  this  latter  respect  quite  intact.  The  great 
unregulated  power  of  influencing  the  development  of 
Canada  which  remains  outside  the  scope  of  the  Board's 
control  in  the  hands  of  the  railways  will  receive  further 
consideration  later.  At  this  point  it  is  sufficient  to  note 
that  it  exists. 

§  2.  On  the  other  hand,  when  the  railways,  of  their  own 
volition,  have  established  a  developmental  rate,  that  rate 
comes  within  the  scope  of  the  Board's  jurisdiction.  It  may 
not  freely  be  withdrawn.  Equities  may  have  grown  up 
under  it  which  demand  protection.  "It  is  a  well-estab- 
lished principle  of  rate  regulation  that  where  a  business 
has  been  built  up  relying  upon  a  particular  rate  adjust- 
ment an  increase  in  this  rate  adjustment  should  not  be 
made  without  amply  sufficient  reasons,"  ^  In  The  Syden- 
ham Glass  Company  vs.  The  Grand  Trunk  Railway  it  was 
shown  that  bottles  had  been  shipped  from  Wallaceburg  to 
Toronto  at  lower  than  fifth  class. ^  Upon  the  rates  being 
increased  the  company  applied  for  relief  to  the  Board. 

1  10/202.  2  8/45.  »  1/67. 


214  CANADIAN  RAILWAY  RATES 

Upon  the  representation  that  it  could  not  maintain  its 
position  in  the  home  market  against  foreign  competition 
the  advance  in  rates  was  disallowed.  Similarly,  when  the 
railways  increased  the  rate  on  split  peas  for  export,  the 
pea  millers  protested  that  the  new  rates  were  prohibitive 
and  that  they  would  lose  the  English  market.^  The  Board 
found  reason  to  grant  relief  in  the  fact  that  the  flour  rate, 
which  split  peas  had  formerly  taken,  had  not  been  ad- 
vanced. The  Board  remarked  that  it  was  doubtful  if  rail- 
ways should  be  permitted  to  continue  a  policy  which, 
while  financially  preferable  to  them,  did  an  injury  to  an 
important  Canadian  industry. 

The  position  developed  in  these  cases  has  been  recently 
limited  by  the  ruling  in  the  complaint  of  the  Nanaimo 
Board  of  Trade  against  the  elimination  of  Nanaimo  as  a 
terminal  freight-rate  port.  Nanaimo  had  had  the  advan- 
tage of  the  terminal  rate  for  a  long  time.  It  was  admitted 
that  freight  movements  to  Nanaimo  were  relatively  not 
declining.  It  was  accepted  also  that  when  granted  the 
same  terminal  rate  as  Victoria  there  were  differences  be- 
tween these  points  in  respect  of  ocean  tonnage  and  water 
competition.  Nevertheless,  the  Board  held,  notwithstand- 
ing these  facts,  that  the  railway  company  was  entirely 
within  its  rights  in  abrogating  the  arrangement  because 
it  had  the  discretion  to  meet  or  ignore,  as  it  chose,  water 
competition.^ 

Moreover,  if  a  developmental  rate  be  granted  and  it 
serve  its  purpose  of  establishing  a  prosperous  industry,  the 
Board  will  permit  normal  rates  or  at  least  rates  higher 
than  those  first  granted,  to  be  reestablished  from  that 
point.  This  is  obviously  the  teaching  of  The  United  Fac- 
tories, Limited,  vs.  The  Grand  Trunk  Railway.^  In  this 
case  the  railway  companies  had  granted  a  three-cent  rate 
upon  logs  upon  condition  that  the  product  should  be  deliv- 
ered for  shipment  by  its  Une.  Later  the  railway  advanced 
»  1/70.  2  VI  J.O.R.R.  12.  •»  1/69;  VI  J.O.R.R.  201. 


RATE  THEORIES  AND  PUBLIC  POLICY       215 

the  rate  to  four  cents,  subject  to  the  same  condition. 
The  ordinary  rate  was  seven  and  one-half  cents.  The  com- 
plainant alleged  that  the  volume  of  business  had  largely 
increased,  and  contended  that  instead  of  an  increase  they 
were  entitled  to  an  even  lower  rate.  The  Board  rejected 
this  plea,  holding  that  the  low  rate  was  a  temporary  ex- 
pedient to  develop  traffic,  and  that  the  new  rate  was 
neither  unjust  nor  unreasonable.  Probably  in  this  instance 
the  disparity  between  the  original  rate  and  the  ordinary 
rate  on  logs  influenced  the  Board,  for  in  cases  of  this  na- 
ture in  the  absence  of  other  data  the  Board  has  relied  upon 
comparison  of  other  rates.  When  the  winter  export  rate  on 
butter  from  Montreal  to  St.  John  was  advanced,  while  ad- 
mitting the  presumption  of  reasonableness  that  attached 
to  the  old  rate,  the  Board  justified  the  advance  on  the  low- 
ness  of  the  rate  per  mile  and  the  nature  of  the  service.^ 
In  an  advance  on  the  rates  on  stone  from  Stonewall  to 
Winnipeg,  where  the  railways  had  agreed  to  protect  the 
rate,  the  Board  disallowed  the  increase,  stating  that  its 
opinion  was  strengthened  by  a  comparison  with  the  rates 
charged  on  the  same  traffic  from  points  outside  of  Toronto. ^ 
On  the  other  hand,  the  Board  will  not  permit  a  carrier 
unreasonably  to  increase  the  rate  to  shut  out  competition. 
This  was  the  point  of  the  Stoy  Case,'  where  the  Grand 
Trunk  endeavored  to  collect  the  local  rate  from  the  Amer- 
ican boundary  on  crude  oil :  — 

The  reason  given  for  this  attempt  was  not  that  the  joint  rate 
covered  by  the  joint  tariff  was  unreasonable  or  unprofitable  to 
respondents.  It  was  admitted  that  the  local  rate  attempted  to 
be  established  in  place  of  the  share  of  the  joint  rate  was  exces- 
sive, and  intentionally  so.  It  was  established,  so  it  was  stated  in 
the  evidence,  "to  keep  out  American  oil  by  putting  up  these 
rates."  This  is  illegal. 

Conversely,  the  Board  will  not  compel  a  reduction  in 
rates  where  a  change  in  the  customs'  tariff  exposes  an  in- 

1  4/222.  '  1/73.  3  5/211. 


816  CANADIAN  RAILWAY  RATES 

dustry  to  foreign  competition.  In  the  application  of  the 
Canadian  Oil  Companies,  Limited,  for  a  reduced  rate 
from  Petrolia  to  Winnipeg,^  it  was  alleged  that  the  ad- 
vantage of  the  Kansas  refiners  was  so  great  that  they 
could  "eliminate  the  applicant  companies  from  competi- 
tion in  the  Canadian  Northwest."  It  developed,  however, 
that  this  advantage  in  part  grew  out  of  the  removal  of 
the  duty  by  the  Canadian  Parliament,  The  Board  said, 
"It  does  not  fall  within  the  scope  of  the  Board's  powers 
to  reduce  a  rate  because  a  removal  of  customs  duty  has 
created  a  keen  competition."  In  brief,  the  position  of  the 
Board  is  that  the  railways  may  lower  rates  for  develop- 
mental purposes  at  their  own  discretion,  so  long  as  there 
is  no  undue  discrimination,  but  that  having  lowered  rates 
they  may  not  be  advanced,  unless  water  competition  is  a 
controlling  factor,  except  upon  proof  that  there  will  be  no 
injury  to  business  that  has  grown  up  under  the  reduc- 
tion. Rates  raised  merely  to  shut  out  competition  are 
illegal. 

§  3.  In  the  rate  decisions  that  have  been  considered  up 
to  this  point  the  issue  has  lain  between  public  and  private 
interests;  the  former  as  represented  by  shippers  or  con- 
sumers, the  latter  by  the  railways  themselves.  It  is  obvi- 
ous, however,  that  cases  may  occur  where  the  interests  of 
the  public  are  not  affected  at  all,  or  if  affected  only  in  an 
indirect  and  remote  way.  These  are  cases  that  grow  out 
of  inter-carrier  situations.  They  may  arise  where  a  given 
body  of  traffic  might  be  carried  to  its  destination  by  several 
routes,  and  where  it  might  be  premised  that  so  long  as  the 
traffic  is  not  carried  at  rates  unreasonably  high  to  the  pub- 
lic, or  at  rates  unreasonably  low  for  the  carrier,  it  were  a 
matter  of  no  direct  consequence  by  what  particular  fa- 
cility it  had  been  transported.  There  must  be  a  sequence 
of  indirect  consequences,  it  is  true,  which  in  the  final  inci- 
dence would  fall  upon  the  public,  but  on  the  surface  the 

»  7/207. 


RATE  THEORIES  AND  PUBLIC  POLICY       217 

same  rates  for  the  same  service  being  assured  the  pubhc 
interest  ends. 

Of  a  group  of  cases  which  disclose  these  conditions,  both 
in  their  direct  and  indirect  aspects,  probably  the  most  im- 
portant is  The  Elder-Dempster  Company,  Limited,  vs. 
The  Canadian  Pacific  and  Grand  Trunk  Railways  con- 
cerning through  traffic  to  the  Pacific  Coast.  ^  The  Elder- 
Dempster  Company,  Limited,  operated  a  line  of  steam- 
ships to  the  Isthmus  and  was  engaged  in  carrying  British 
Columbia  freight  via  that  route  to  Vancouver.  It  was 
thus  actively  in  competition  with  the  Canadian  carriers 
for  the  long-haul  Pacific  Coast  traffic.  In  pursuance  of 
this  competition  it  applied  to  the  Board  for  an  order  re- 
quiring the  railways  to  apply  the  estabUshed  export  tariff 
on  goods  shipped  from  points  in  Eastern  Canada  to  Mon- 
treal, St.  John,  and  Halifax  for  export  to  Vancouver  and 
other  British  Columbia  points.  In  holding  that  the  appli- 
cation could  not  succeed,  the  Board  said  that  it  was  a 
struggle  between  competing  carriers  to  compel  the  railways 
to  divert  their  long-haul  westbound  traffic  to  a  short  east- 
bound  haul  under  a  low  rate  without  it  being  by  any  means 
clear  that  the  shipper  would  obtain  any  material  benefit. 

In  reinforcing  this  conclusion  the  Board  drew  attention 
to  the  fact  that  it  had  no  control  over  the  joint  ocean-and- 
rail  rate,  and  that  there  was  no  guarantee  that  if  the  export 
rail  rate  were  applied  to  the  traffic  in  question  that  the 
through  rate  would  not  proportionately  rise.  Although 
the  Board  was  anxious,  it  said,  that  the  shipper  should  be 
allowed  to  avail  himself  of  every  available  competitive 
consideration  of  carriage  and  every  available  route,  there 
was  nothing  to  show  that  in  this  case  benefits  would  flow 
from  the  reduction  sought.  When  this  decision  was  handed 
down  the  Panama  Canal  was  not  open  for  traffic,  and  con- 
siderable weight  was  given  to  the  fact  that  the  Isthmus 
Railway  might  easily  absorb  the  reductions  by  higher 

1  5/281. 


218  CANADIAN  RAILWAY  RATES 

rates.  How,  in  view  of  the  existence  now  of  an  all-water 
route,  the  Board  would  revise  its  findings  can  scarcely  be 
predicted.  In  other  cases  it  has  expressed  the  opinion  that 
water  rates,  being  more  highly  competitive,  tend  to  be 
self-regulative.^  In  the  face  of  this  expressed  opinion  the 
contention  that  a  reduction  of  the  rates  to  the  export  level 
might  mean  no  real  benefit  to  the  shipper  is  deprived  of  its 
force.  Manifestly,  if  the  issue  were  pleaded  afresh  under 
the  conditions  that  now  prevail,  the  Board  would  be 
forced  to  grant  the  reduction  or  dispose  of  the  application 
upon  other  grounds  than  that  employed  on  this  occasion. 
The  same  train  of  reasoning  has  been  relied  upon  in 
other  cases  to  preserve  railway  traffic  coveted  by  a  rival. 
There  can  scarcely  be  any  doubt  that  it  is  a  settled  princi- 
ple of  the  Board  that  where  no  immediate  direct  advantage 
appears  to  the  public  the  Board  will  not  lend  its  power  to 
enable  one  company  to  compete  more  successfully  with 
another.  This  is  shown  with  particular  clearness  in  an 
application  involving  the  coal  rates  between  Duluth  and 
Fort  William  and  Winnipeg.^  Coal  moves  at  a  $2.50  rate 
from  Fort  William  to  Winnipeg  on  the  Canadian  Northern 
line,  where  it  is  a  valuable  back  haul  balancing  grain  ship- 
ments eastward.  It  may  also  move  from  Duluth  over  the 
Great  Northern  and  Canadian  Northern  lines,  though  a 
$3  rate  naturally  penalizes  a  movement  from  that  port. 
In  the  event  of  its  doing  so  the  Canadian  Northern's  share 
of  the  joint  rate  is  seventy-five  cents.  To  secure  part  of 
this  traffic  the  Great  Northern  wished  to  equalize  the  tolls 
between  the  rival  ports,  while  allowing  the  Canadian 
Northern  the  same  amount  in  the  division  of  the  through 
rate  as  before.  The  Canadian  Northern  refused  to  agree  to 
this  proposition  because  it  would  be  exchanging  a  short 
haul  from  the  boundary  for  the  long  haul  from  the  head 
of  the  Lakes,  and  it  came  before  the  Board.  The  Board 
said  that  it  was  not  a  case  of  the  W^innipeg  consumer  get- 
1  15  C.R.C.  147.  2  6/361. 


RATE  THEORIES  AND  PUBLIC  POLICY       219 

ting  coal  by  a  shorter  freight  route,  nor  did  the  appHcation 
come  from  the  people  of  Winnipeg  supported  by  evidence 
to  show  that  the  Canadian  railways  were  in  default  in 
transporting  the  commodity.  It  therefore  denied  the  ap- 
plication, characterizing  it  as  "a  plain  and  selfish  attempt 
by  the  applicant  to  use  the  Board  to  divert  traffic  from  the 
lines  of  the  respondent  to  its  own  lines." 

The  Muskoka  Rates  Case  affords  another  example  of  the 
operation  of  the  principle.^  In  this  instance  the  Canadian 
Northern  was  the  applicant  and  endeavored  to  compel  the 
Grand  Trunk  and  the  Canadian  Pacific  Railways  to  sell 
through  tickets  to  places  in  Muskoka  served  by  its  lines. 
The  failure  to  prove  that  the  public  was  appreciably  in- 
terested was  fatal  to  the  application:  — 

It  does  not  seem  to  be  a  reasonable  proposition  that  a  railway 
company  should  be  at  liberty  to  use  the  act  for  the  purpose  of 
diverting  to  its  line  traflSc  that  has  been  originated  only  at  great 
expense  and  trouble  by  another  railway  or  other  railways  with- 
out at  least  showing  a  great  preponderance  of  convenience  to 
the  public.^ 

It  is  true  that  similar  decisions  have  been  made  in  similar 
English  and  American  cases,  so  that  there  is  nothing  novel 
in  the  Board's  conclusions.^  Yet  there  are  certain  indirect 
consequences  that  flow  from  this  principle  when  applied 
to  Canadian  conditions,  that  demand  consideration.  The 
Board  has  not  been  altogether  happy  in  the  economic  rea- 
soning it  has  employed  to  support  its  conclusions.  As  a 
matter  of  public  policy  the  desirability  of  retaining  the 
transcontinental  traffic  to  the  railways  may  be  assumed. 
In  the  Elder-Dempster  Company  application  the  Board 
based  its  refusal  to  grant  export  rates  on  the  ground  that 
the  shipper  might  not  profit  if  the  reduction  were  ordered. 
The  opening  of  the  Panama  Canal  has  changed  conditions 
and  cut  the  ground  from  under  the  decision,  yet  the  ini- 

1  7  C.R.C.  289.  Cp.  4/254.       «  Cp.  17  C.R.C.  422.       ^  Cp.  9/287. 


220  CANADIAN  RAILWAY  RATES 

tial  desirability  to  retain  the  long-haul  traffic  to  Canadian 
lines  remains.  To  go  farther,  the  general  assumption  that 
a  reduction  of  rates  that  will  introduce  to  a  given  field  a 
competing  carrier  will  not  affect  the  service,  is  scarcely 
tenable.  The  assumption  denies  the  merit  claimed  for  com- 
petition. While  the  rates  as  between  competing  carriers 
may  remain  at  the  same  level,  yet  those  collateral  cir- 
cumstances, the  due  harmony  of  which  unite  to  produce 
good  or  better  service,  come  within  the  scope  of  competi- 
tion, and  there  is  continuous  rivalry  between  competing 
lines  in  this  respect.  The  truth  of  this  observation  has 
been  verified  time  and  again  with  regard  to  passenger  serv- 
ice, and  is  a  scarcely  less  important  consideration  in  re- 
spect to  freight.  A  safer  basis  for  these  decisions,  more  in 
keeping  with  economic  truth,  might  have  been  found  in  the 
frank  recognition  that  the  orders  applied  for  in  these  cases 
would  mean  competition  for  the  carrier  affected,  but  that 
as  it  lies  in  the  discretion  of  carriers  to  meet  or  ignore  com- 
petition, it  cannot  be  indirectly  forced  upon  a  railway  by 
the  Board. 

Another  aspect  develops  in  the  Muskoka  Rates  Case. 
The  tourist  traffic  comes  largely  from  the  United  States 
and  enters  by  way  of  Buffalo  and  Niagara  Falls.  The 
Canadian  Northern  had  lines  penetrating  the  Muskoka 
region,  but  had  no  entrance  into  Buffalo.  In  so  far  as  the 
decision  deprives  the  Canadian  Northern  from  sharing  in 
the  tourist  trade  with  the  other  lines,  it  is  manifest  that  it 
affords  a  valid  reason  why  that  company  should  endeavor 
to  build  or  secure  an  entrance  into  Buffalo.  Apparently 
only  in  that  way  can  it  secure  the  traffic  that  will  enable 
it  properly  to  utilize  its  Muskoka  lines.  In  other  words, 
the  indirect  consequence  of  this  decision  —  and  it  holds 
equally  with  respect  to  the  Coal  Rates  Case  —  is  to 
stimulate  competitive  railway  building  to  competitive 
points,  although  facilities  already  in  existence  may  really 
be  sufficient  to  handle  the  traffic.    The  final  effect  is  an 


RATE  THEORIES  AND  PUBLIC  POLICY       221 

unnecessary  duplication  of  facilities  which  leads  in  the 
long  run  to  higher  charges. 

While  in  these  instances  the  Board  refused  to  consider 
the  more  remote  economic  consequences  of  its  decisions, 
but  confined  itself  to  the  immediate  effects,  it  made  a  fac- 
tor in  the  decision  in  each  case  of  the  absence  of  an  appre- 
ciable public  interest.  This  element  appeared,  however, 
as  controlling  in  a  late  case  ^  of  considerable  importance, 
an  application  of  the  Canadian  Northern  for  an  order 
directing  the  Grand  Trunk  to  interchange  freight  traffic 
at  North  Bay  on  an  equality  with  the  Canadian  Pacific. 
It  was  argued  on  behalf  of  the  Grand  Trunk  that  the  in- 
terest of  the  public  must  be  established,  and  this  was  met  by 
submissions  of  the  Quaker  Oats  Company  at  Peterborough 
that  they  were  suffering  from  a  shortage  of  grain.  It  was 
further  recognized  by  the  Board  that  if  the  application  of 
the  Canadian  Northern  were  dismissed  the  effect  would  be 
to  oblige  it  to  hand  over  to  the  National  Transcontinental 
at  Winnipeg  or  the  Canadian  Pacific  at  Port  Arthur  all 
traffic  originating  on  its  fines  in  the  West  destined  to 
Grand  Trunk  points  intermediate  to  the  transfer  tracks  at 
Toronto.  This  the  Board  held  would  violate  the  estab- 
lished rule  that  the  initiating  company  is  entitled  to  the 
benefits  of  the  long  haul.  "It  would  not  be  just,"  the 
Chief  Commissioner  said,  "to  the  Canadian  Northern  to 
refuse  the  present  application  or  to  carry  the  principles  on 
which  the  Muskoka  Rates  and  Fort  William  Coal  Cases 
were  adjudicated  to  their  logical  conclusions.  There  are 
other  questions  which  must  be  considered."  ^  As  the  de- 
cision indicates,  the  application  of  the  principle  of  public 
interest  plus  the  principle  that  the  initiating  company  is 
entitled  to  the  long  haul  virtually  overturns  the  holding 
in  the  earlier  cases. 

The  acceptance  of  this  point  of  view  is  eminently  de- 
sirable. The  conserving  of  the  long  haul  to  the  initiating 
1  March  9,  1916.  «  VI  J.O.R.R.  7. 


822  CANADIAN  RAILWAY  RATES 

company  fulfills  the  conditions  of  fairness  and  at  the  same 
time  prevents  inter-carrier  rivalry  indirectly,  but  no  less 
certainly,  leading  to  a  railway  situation  of  public  detri- 
ment. In  keeping  with  this  decision  the  Board  granted 
the  application  of  the  London  &  Lake  Erie  Railway  Com- 
pany for  an  order  requiring  the  Michigan  Central  Railway 
Company  to  place  it  on  the  same  basis  with  respect  to 
traffic  arrangements  as  the  London  &  Port  Stanley  Rail- 
way Company.^  Similarly  when  the  general  inter-car- 
rier situation  in  1916  led  to  the  canceUation  of  a  large 
number  of  joint  tariffs,  the  Board  promptly  ruled  that 
joint  rates  must  be  given  by  both  the  Grand  Trunk  and 
Canadian  Pacific  to  Canadian  Northern  points.^  In  like 
manner  the  Canadian  Northern  must  maintain  joint  tariffs 
between  its  line  and  proper  points  on  the  other  two  sys- 
tems. If  such  cancellations  were  allowed  the  effect  would 
have  been  to  make  traffic  move  between  points  affected 
on  the  sum  of  the  locals.  This  phase  of  rate  regulation 
has  been  dealt  with  more  fully  under  the  discussion  of 
joint  rates.^  The  significance  of  the  large  number  of  can- 
cellations, however,  was  that  it  was  a  phase  of  inter-car- 
rier rivalry.  The  prompt  action  of  the  Board  indicated 
that  it  would  not  permit  the  public  interest  to  suffer  in 
this  manner. 

Finally,  several  cases  may  be  cited  as  further  indication 
of  the  advance  in  point  of  view  from  the  standpoint  of 
public  interest  that  has  marked  recent  decisions  of  the 
Board.  In  1906  the  Board,  under  Chief  Commissioner 
Killam,  ruled  that  the  Nelson  &  Fort  Sheppard  Railway 
Company  need  not  permit  its  equipment  to  leave  its  own 
line,  and  this  precedent  was  followed  by  Chief  Commis- 
sioner Mabee  in  1911,  who  upheld  the  Grand  Trunk  in 
its  refusal  to  grant  cars  for  loading  to  Winnipeg  via  either 
the  Canadian  Pacific  or  Canadian  Northern  Railways.^ 

1  VI  J.O.R.R.  89.  2  VI  J.O.R.R.  406;  11/253. 

3  ArUe,  p.  167  B.  *  6/359. 


RATE  THEORIES  AND  PUBLIC  POLICY       223 

Under  these  decisions  railway  companies  as  occasion  de- 
manded refused  to  supply  cars  to  be  routed  for  destina- 
tion off  their  own  lines.  But  in  the  fall  of  1916  complaints 
were  made  by  the  Edmonton  coal  shippers  that  they  could 
get  no  cars  for  shipments  to  points  on  railways  other  than 
the  railways  upon  which  the  mines  were  located.  At 
Drumheller  the  Canadian  Northern  put  an  absolute  em- 
bargo against  loading  any  of  its  cars  to  points  on  the 
Canadian  Pacific.  The  Board  ruled:  "Coal  must  be  trans- 
ported, and  when  necessary,  existing  transportation  prac- 
tices, rules,  and  rights  must  be  made  subservient  to  a  real 
public  emergency."  ^  Working  out  the  details  of  this  prin- 
ciple it  declared,  "In  cases  where  the  long  haul  is  enjoyed 
by  the  receiving  instead  of  the  originating  line  the  receiv- 
ing line  must  supply  the  cars."  Similarly,  when  congestion 
of  grain  occurred  in  the  Goose  Lake  district  served  by  the 
Canadian  Northern  line,  under  additional  powers  secured 
from  Parliament  the  Board  ordered  a  substituted  service 
over  the  Grand  Trunk  Pacific  from  Saskatoon  without 
additional  cost  ^  to  the  farmer.  Finally,  in  January,  1917, 
when  serious  traffic  congestion  existed  in  Eastern  Canada 
the  Board  compelled  the  railroads  to  rearrange  their  pas- 
senger schedules  so  that  seventy-three  engines  and  crews 
were  released  to  move  freight  traflSc.^  It  will  thus  be  seen 
that  under  the  stress  of  traffic  congestion  and  war  condi- 
tions the  Board  has  assumed  considerably  wider  powers 
than  in  the  past.  In  the  course  of  assuming  these  powers 
old,  established  precedents  have  been  set  aside  with  con- 
siderable gain  in  the  Board's  elasticity  of  function.  It 
must  be  recognized,  however,  that  these  powers  have  been 
exercised  only  under  the  pressure  of  emergency.  They 
remain,  nevertheless,  available  for  use  in  future  occasion 
of  stress  and  difficulty. 

In  a  couple  of  cases  the  right  of  a  railway  to  grant  a 
discriminating  rate  has  been  upheld  on  what  is  really  a 

»  VI  J.O.R.R.  440.     2  VI  J.O.R.R.  1, 3, 294,  312.     3  yi  J.O.R.R.  462. 


224  CANADIAN  RAILWAY  RATES 

double  basis,  the  right  to  protect  traffic  and  incidentally 
to  protect  industry.  These  cases  exemplify  the  principle 
that  a  low  rate  may  be  charged  on  raw  material,  if  the 
railways  will  receive  a  return  haul.  In  the  International 
Pulp  wood  Rates  Case^  this  compensatory  second  haul  from 
Canadian  mills  was  held  to  be  an  important  factor  in  the 
case.  Similarly,  when  the  Michigan  Sugar  Company,  oper- 
ating a  plant  at  Croswell,  Michigan,  complained  that 
the  rate  on  sugar  beets  from  points  on  the  Chatham, 
Wallaceburg  &  Lake  Erie  Railway  was  discriminatory  as 
compared  with  the  rate  granted  to  the  Dominion  Sugar 
Company,  whose  factory  was  located  at  Wallaceburg,  the 
railway  urged  that  the  low  rate  was  granted  in  consideration 
of  the  higher  rate  on  outbound  products.^  It  was  shown 
that  the  products  of  the  two  factories  did  not  come  into 
competition  and  the  Dominion  Sugar  Company  paid  for 
its  sugar  beets  at  a  higher  rate.  The  Board  said  that  it 
was  justifiable  to  take  into  consideration  the  relationship 
between  the  rates  on  inbound  and  outbound  traffic,  and 
decided  that  while  there  was  discrimination  it  was  neither 
undue  nor  unjust.' 

A  survey  of  these  cases  discloses  the  fact  that  the  rail- 
ways have  very  considerable  power  in  manipulating  rates 
for  their  own  advantage.  Thus  power  may  be  thoroughly 
justified  from  the  standpoint  of  permitting  the  roads  to 
develop  traffic  and  thus  of  earning  revenue,  but  it  must  be 
recognized  that  incidentally  there  goes  with  it  consider- 
able control  over  social  development.  It  does  not  neces- 
sarily follow  that  a  railway  operating  its  lines  to  secure 
pecuniary  results  will  at  the  same  time  procure  the  best 
social  ends,  or  indeed  consider  them  of  much  importance. 
It  is  a  difficult  problem  how  the  discretion  necessary  to  the 
railway  manager  may  be  conserved  and  yet  permit  social 
consideration  to  receive  due  recognition.  As  it  stands, 
while  the  prohibition  of  undue  discrimination  puts  a  cer- 
»  8/273.  Cp.  9/275.         2  6/205.        3  Cp.  VI  J.O.R.R.  203,  241. 


RATE  THEORIES  AND  PUBLIC  POLICY       225 

tain  check  upon  preferential  treatment,  yet  the  interpre- 
tation of  this  principle  that  it  must  be  shown  that  one  point 
specifically  profits  at  the  expense  of  the  other  really  in  a 
large  measure  destroys  its  effective  value.  The  power  of 
the  railways,  for  example,  to  hold  back  the  progressive 
development  of  Brampton,  while  encouraging  that  of  Oak- 
ville,  is  capable  of  wide  extension,  with  correspondingly 
important  results.  There  is  really  a  great  difference  be- 
tween "warm  sympathy"  and  "cold  justice,"  a  fact  that 
Canadian  railway  managers  have  not  had  to  learn  from 
Canadian  politicians.  A  mediation  between  these  two 
attitudes  is  needed.  There  is  no  reason  under  these  rulings 
why  whole  districts  might  not  be  discriminated  against  in 
the  same  way,  with  the  unfortunate  social  result  that  dis- 
tricts where  industrial  development  means  heavy  traffic 
for  the  railways  would  receive  every  advantage  that  low 
transportation  rates  could  give,  while  other  districts, 
where  conditions  were  not  so  favorable  for  the  railways, 
might  be  subtly  discriminated  against,  although  from  any 
other  standpoint  their  development  was  just  as  impor- 
tant. There  is  no  good  reason  why  the  Board  should  es- 
tablish the  general  ruling  that  one  line  may  refuse  to  sell 
tickets  to  points  on  another  line  with  ia  view  to  protect- 
ing its  own  traffic,  or  may  refuse  to  permit  competitive 
rates.  The  subsequent  rejection  of  the  logic  of  this  prin- 
ciple, when  applied  to  freight  traffic  between  the  Canadian 
Northern  and  the  Grand  Trunk  and  the  equitable  solu- 
tion of  the  problem,  suggests  that  a  better  solution  than 
that  obtained  might  have  been  secured  in  the  Muskoka 
Rates  Case.  Much  sounder  is  the  later  position,  as  well 
as  that  established  in  the  London  Interswitching  Rates 
Case,  where  the  Board  assumed  jurisdiction  and  ordered 
interswitching  at  a  reasonable  rate  between  lines.  The 
Muskoka  Rates  holding  represents  a  rigid  application  of 
the  individual  competitive  point  of  view;  the  later  deci- 
sions, while  conserving  to  the  community  the  benefits  of 


226  CANADIAN  RAILWAY  RATES 

competition,  limits  its  perils.  They  do  not  carry  the  logic 
of  pecuniary  competition  to  the  point  where  it  issues  in  a 
transportation  situation  of  monopolized  areas.  The  gen- 
eral reply  which  the  Board  itself  has  indicated  to  these 
observations  ^  is  that  the  railways  must  be  left  free  to  exe- 
cute their  plans  of  commercial  development  in  order  that 
the  railways  may  pay  their  way.  This  is  true,  but  it  really 
begs  the  question,  for  the  very  appointment  of  a  Board 
of  Railway  Commissioners  implies  that  certain  curbs  and 
restraints  are  to  be  laid  on  the  railways  in  their  pursuit  of 
economic  returns.  ^  In  regard  to  rates  affecting  the  de- 
velopment and  protection  of  industry  it  would  appear  that 
the  Board,  until  recently  at  any  rate,  has  not  taken  as 
broad  a  view  of  its  functions  as  the  act  contemplates  or  at 
least  as  the  act  would  permit. 

§  4.  In  presenting  the  main  principles  that  have  gov- 
erned the  Canadian  Board  of  Railway  Commissioners  in 
its  jurisdiction  over  railway  rates  it  is  obvious  that  some 
minor  aspects  of  the  Board's  activity  in  this  direction 
have  been  ignored.  The  study,  nevertheless,  would  be  in- 
complete if  these  did  not  receive  consideration.  So  much 
enters  into  the  formation  of  the  attitude  and  policy  of  the 
Board  that  without  a  complete  survey  of  its  position  in- 
justice to  it  and  to  the  problems  might  be  done.  In  con- 
cluding this  chapter  it  is  purposed  to  deal  with  certain 
of  these  minor  aspects  which  may  throw  light  upon  the 
Board's  treatment  of  rate  cases.  In  general,  the  handling 
by  the  Board  of  the  cases  that  have  come  before  it  has  been 
judicial.  While  the  Board  "has  never  allowed  any  tech- 
nicality to  defeat  the  hearing  of  a  complaint  ...  a  simple 
statement  of  the  case  at  issue  should  be  supplied  at  the 
outset  both  to  the  Board  and  to  the  railway  or  express 
company  against  which  the  complaint  is  issued."  So,  in 
order  "to  deal  with  a  complaint  and  decide  it,  the  Board 
must  hear  the  other  side.  If  the  other  side  has  no  informa- 
»  See  the  Brampton  Rate  Case,  6/166.  «  Ante,  p.  223. 


RATE  THEORIES  AND  PUBLIC  POLICY       227 

tion  as  to  what  it  has  to  meet,  then  this  plunging  into  the 
middle  of  things  makes  for  delay,  not  for  expedition.  The 
Board  desires  to  proceed  with  expedition;  it  cannot  pro- 
ceed by  intuition."  Combined  with  the  judicial  idea  of 
hearing  and  decision  the  Board's  power  to  act  upon  its 
own  motion  and  to  inform  itself  through  its  own  officers 
gives  it  flexibility  and  possibilities  of  action  that  an  ordi- 
nary court  lacks.  Even  in  this  latter  case  every  opportu- 
nity is  customarily  given  to  the  parties  concerned  to  make 
representations  to  the  Board  before  judgment  issues.^ 

A  question  of  importance  is  its  attitude  to  precedent. 
Although  the  Board  has  declared  that  it  must  "find  the 
criteria  of  the  reasonableness  of  Canadian  rates  within 
Canada,"  this  does  not  mean  that  it  has  not  availed  itself 
of  English  and  American  experience.  Of  these  sources  of 
assistance  it  has  made  considerable  use,  though  naturally 
not  in  a  narrow  and  controlling  way.  Of  the  two,  prob- 
ably the  most  fruitful  has  been  the  American.  English 
precedents,  in  the  case  of  the  Board,  do  not  have  the  same 
binding  weight  of  authority  that  they  have  in  the  ordinary 
Canadian  law  courts,  American  precedents,  while  they 
have  little  weight  in  the  law  courts,  have  commended 
themselves  to  the  Commissioners  by  reason  of  the  fact 
that  the  circumstances  with  which  the  Interstate  Com- 
merce Commission  has  to  deal  approximate  somewhat 
closely  Canadian  conditions:  — 

While  the  provisions  of  the  Canadian  Railway  Act  diflfer  in 
various  respects  from  those  of  the  Act  to  Regulate  Commerce, 
and  while  the  findings  of  the  Commission  organized  under  that 
act  are  by  no  means  applicable  in  their  entirety  in  Canada,  it  is 
manifest  that  when  that  body  has  dealt  with  problems  identical 
with  those  coming  before  the  Board,  the  findings  and  experi- 
ences of  that  Commission  demand  most  careful  attention. ^ 

Hence  the  Canadian  Board,  being  free  to  take  or  leave, 
has  consulted  more  frequently  the  rulings  of  the  American 
1  17  C.R.C.  113.  2  5/216. 


228  CANADL\N  RAILWAY  RATES 

body,  where  its  decisions  have  been  appropriate  to  Ca- 
nadian cases  under  consideration.  The  debt  in  either  in- 
stance has  not  been  heavy.  ^  It  has  really  been  the  prac- 
tice of  the  Board  only  in  enunciating  a  new  principle  or  a 
modification  of  a  principle  to  buttress  its  own  conclusion 
by  showing  that  the  finding  at  which  it  has  arrived  is 
supported  by  similar  conclusions  found  under  similar  con- 
ditions elsewhere.  Thus,  the  Board's  position  that  it  is  at 
the  discretion  of  the  carrier  to  meet  or  ignore  competition 
is  supported  by  both  English  and  American  holdings,^  as 
it  is  in  the  equally  important  ruling  that  joint  tariffs  need 
not  be  filed  between  fines  competing  for  the  same  traflic 
when  there  is  no  inconvenience  to  the  public.^  These  are 
the  two  most  important  cases  where  English  precedents 
have  been  cited. 

Beyond  these  two  judgments  a  more  extensive  corre- 
spondence is  discovered  with  regard  to  American  findings. 
The  Canadian  Board  is  at  one  with  the  Interstate  Com- 
merce Commission  in  holding  that  the  presumption  of  rea- 
sonableness attaches  to  an  established  rate;  that  milling- 
in- transit  is  a  privilege;  that  tariffs  may  not  be  based  on 
the  use  to  which  a  commodity  may  be  put;  that  costs  of 
production  are  not  to  be  equalized  because  of  trade  com- 
petition; that  a  line  controlled  by  stock  ownership  must, 
in  the  determination  of  rates,  be  held  part  of  one  system ;  * 
and  that  a  rate  between  two  points  established  in  compli- 
ance with  the  provisions  of  statute  law  is  the  only  legal 
rate  between  the  points  mentioned. 

On  the  other  hand,  the  Canadian  body  has  taken  wider 

^  "This  Board  has  always  appreciated  the  value  of  the  regulative 
work  done  by  the  Interstate  Commerce  Commission,  and  its  findings  have 
always  been  held  in  esteem.  But  the  Board,  in  holding  that  the  decisions 
of  that  commission  are  applicable  in  their  entirety  here  only  in  cases 
where  circumstances  in  Canada  are  on  all  fours  with  the  circumstances 
upon  which  the  aforesaid  decisions  depended,  has  recognized  the  burden 
placed  upon  it  by  parliament  of  investigating  the  special  circumstances 
of  the  cases  coming  before  it."  8/15. 
,    2  5/227-28.  3  4/255.  4  Cp.  9/139,  17  C.R.C.  324;  7/251. 


RATE  THEORIES  AND  PUBLIC  POLICY       229 

ground  in  holding  that  an  advance  in  a  particular  rate  may 
be  justified  by  proving  a  general  increase  in  railway  costs. ^ 
The  Interstate  Commerce  Commission  has  held  that 
"such  statements  have  little  weight  when  presented  in 
the  abstract  with  no  attempt  to  locate  charges."  This  is, 
perhaps,  the  most  marked  divergence  in  position  between 
the  two  bodies.  The  Board  has  profited  by  American  ex- 
perience in  holding  from  the  outset  that  competition  be- 
tween carriers  is  a  dissimilar  circumstance  suflicient  to 
justify  lower  rates  to  points  where  competition  of  this 
nature  is  present.  The  Board  has  failed  to  give  effect  to 
the  contention  that  a  railway  company  could  not  be 
forced  to  have  traffic  relations  with  other  railways  whose 
stability  they  did  not  recognize,^  holding  merely  that  the 
interest  of  the  public  must  be  established. 

The  Board's  attitude  to  the  precedents  created  by  itself 
is  another  phase  of  the  problem.  As  the  passing  of  time 
has  added  to  the  number  of  cases  adjudicated,  naturally 
the  Board  has  had  less  and  less  occasion  to  turn  to  foreign 
judgments,  finding  sufficient  guidance  in  its  own  holdings. 
Its  decisions  have  been  fairly  consistent  since  its  organiza- 
tion, although  considerable  changes  have  taken  place  in 
the  personnel.  The  only  marked  exceptions  appear  in  the 
International  Pulpwood  Rates  Case,  and  the  North  Bay 
Interchange  Traffic  Case,  already  discussed.  Greater  weight 
appears  to  be  given  in  recent  years  to  the  presumption  of 
reasonableness  attaching  to  an  established  rate  than  in 
the  earlier  days  of  the  Board.  The  earher  attitude  is  re- 
vealed in  the  view  that 

while  the  previous  existence  of  a  rate  aflFords  evidence  of  its  rea- 
sonableness, it  is  not  conclusive  evidence,  but  more  or  less  co- 
gent according  to  circumstance.* 

Later  cases  indicate  a  tendency  to  give  it  considerable 
weight  imless  it  can  be  very  clearly  shown  that  conditions 

1  8/271.  2  VI  J.O.R.R.  5.  Cp.  11/189.  ^  4/223. 


230  CANADIAN  RAILWAY  RATES 

have  changed.  As  regards  the  Board's  general  rehance 
upon  its  earher  decisions,  before  the  war  there  appeared 
to  be  some  danger  that  it  was  becoming  rather  formal  and 
mechanical.  In  other  words,  the  Board  did  not  seem  to 
be  escaping  altogether  the  vis  inertia  of  tradition.  Such  a 
statement  is  made  advisedly  and  rests  upon  a  considera- 
tion of  the  general  temper  displayed  in  the  whole  group 
of  rate  decisions  up  to  1914.  Some  cases  revealed  a  tend- 
ency to  rely  upon  precedent  rather  than  upon  reason. 
The  evil,  for  it  is  an  evil,  had  not  reached  any  measure  of 
importance,  but  was  to  be  just  detected  as  a  possible  dan- 
ger to  the  future  usefulness  of  the  Board.  The  great  series 
of  adjustments  forced  upon  the  railways  by  the  war  and  by 
increased  costs  has,  however,  had  its  reflex  upon  the  work 
of  the  Board.  In  facing  a  large  series  of  difficult  problems 
arising  out  of  the  national  crisis,  both  in  general  in  Canada 
and  specifically  in  the  transportation  field,  the  Board  has 
displayed  a  freshness,  keermess,  and  vigor  of  treatment 
worthy  of  the  times. 

In  the  case  of  international  rates,  the  Board  has  fre- 
quently pointed  out  that  it  has  no  control  over  transpor- 
tation lines  in  the  United  States.^  Where  injustice  to  a 
shipper  is  discovered  to  be  due  to  the  rates  of  carriage  im- 
posed on  lines  across  the  boundary,  the  Board  has  been 
unable  to  grant  relief.  In  fact,  however,  the  Board  has 
exercised  some  influence  upon  international  traffic,  for  if 
its  power  ceases  at  the  boundary  it  at  least  has  been  able 
indirectly  to  touch  foreign  conditions  by  its  control  over 
the  Canadian  part  of  a  joint  rate.^  It  is  thus  able  to  remedy 
to  that  degree  any  injustice  in  the  charge.  Moreover,  it 
has  provided  that  when  an  American  line  wishes  it  may 
file  tariffs  showing  through  rates  to  Canada  with  the  Board 
and  such  rates  become  at  once  the  legal  rates  between  the 
points  named. ^  If  the  Canadian  lines  object  to  any  rate 
quoted,  they  have  to  do  so  by  applying  to  the  Board  for 
1  7/189.   Cp.  VI  J.O.R.R.  189.  ^  7/237.  3  5/209. 


RATE  THEORIES  AND  PUBLIC  POLICY       231 

the  disallowance  of  the  rate,  rather  than  by  filing  an  ex- 
ception to  it  according  to  the  practice  of  the  Interstate 
Commerce  Commission.  Lines  operating  in  Canada  which 
quote  rates  to  American  terminals  also  come  within  the 
inhibitions  of  the  long  and  short  haul  clause.  Thus,  in  the 
International  Rates  Case  rates  to  Windsor  were  held  down 
by  the  rate  to  Detroit  across  the  river.  ^ 

These  cases  show  the  limits  of  the  Board's  power  of  con- 
trol over  international  rates.  On  the  whole,  its  power  is 
slight,  and  a  larger  degree  of  control  of  some  sort  is  de- 
sirable from  the  standpoint  of  both  the  American  and 
Canadian  shipper,  for 

it  is  patent  that  the  number  of  cases  in  which  the  through  regu- 
lation of  a  rate  involves  dealing  with  the  rate  of  both  the  Ameri- 
can and  Canadian  carrier  will  steadily  increase  with  the  steadily 
increasing  interrelation  of  the  railway  network  of  Canada  and 
the  United  States.  ^ 

This  has  been  brought  home  to  the  Board  on  more  than 
one  occasion  and  is  a  natural  result  of  the  heavy  interre- 
gional traffic  between  the  two  countries.  The  advantages 
to  be  gained  are  mutual,  and  the  similarity  in  the  princi- 
ples that  the  regulative  bodies  of  Canada  and  the  United 
States  have  developed  should  make  it  a  matter  of  no 
great  difficulty  to  fix  a  method  whereby  cases  of  this  nature 
could  be  passed  upon.  The  Canadian  Board  at  different 
times  has  suggested  a  means  of  accomplishing  this  end.^ 

In  Davy  vs.  The  Niagara,  St.  Catharine  &  Toronto  Rail- 
way Company  and  the  Michigan  Central  Railway  Com- 
pany the  Board  expressed  the  opinion  that  the  complain- 
ant was  entitled  to  relief,  but  as  part  of  the  toll  charged  by 
the  Michigan  Central  was  for  services  rendered  in  the 
United  States  it  was  under  the  sole  control  of  the  Inter- 
state Commerce  Commission.^  The  Board  suggested  the 
possibility  of  concurrent  action:  — 

1  3/8.  *  8/44.  3  11/115.  4  7/191. 


232  CANADIAN  RAILWAY  RATES 

The  applicant  has,  I  think,  another  course  open  to  him.  He 
may  bring  complaint  before  the  Interstate  Commerce  Commis- 
sion, and  if  that  tribunal,  upon  investigation,  is  of  opinion  that 
an  order  should  be  made  reducing  the  toll  for  the  service  in  the 
State  of  New  York,  there  is  no  reason  that  I  know  of  why  orders 
cannot  be  made  by  that  and  this  Commission  putting  into  effect 
the  rate  that  the  two  Commissions  regard  as  the  proper  one. 

Another  suggestion  has  been  the  establishment  of  a 
special  tribunal  to  deal  with  these  cases.  In  Stockton  and 
Mallinson  vs.  The  Dominion  Express  Company  '  an  appli- 
cation was  made  to  secure  joint  rates  on  carloads  of  fruit 
and  vegetables  from  the  Western  fruit-growing  States  to 
Regina.  The  application  failed  for  lack  of  jurisdiction. 
The  Board  on  this  occasion  said :  — 

Difficulties  of  this  character  regarding  international  traffic  are 
continually  arising;  no  tribunal  now  exists  that  can  deal  with 
them,  and  until  such  body  is  established,  shippers  and  others 
must  be  left  to  work  their  disputes  out  with  the  carriers  as  best 
they  can. 

Until  such  a  tribunal  is  established  or  arrangements  for 
reciprocal  action  are  concerted  a  large  body  of  rates  remain 
outside  the  scope  of  regulation  and  are  a  source  of  dis- 
turbance to  the  rate  tribunals  of  both  countries.  The 
need  of  some  action  is  manifest.^ 

Undoubtedly  one  aspect  of  the  Board's  method  of  han- 
dling rate  problems  has  tended  to  increase  the  general  con- 
fidence placed  in  the  soundness  of  its  decisions.  In  its  opin- 
ions it  has  frankly  indicated  weak  points  in  the  submissions 
of  the  applicants  or  respondents  before  it.    Where  these 

1  8/276. 

2  "Contracts  made  in  the  United  States  for  the  carriage  of  carload 
traffic  passing  from  one  point  to  another  in  the  United  States  are  under 
the  control  of  the  Interstate  Commerce  Commission,  and  the  Board  hav- 
ing regard  to  international  comity  will  not  make  an  order  as  to  demm-- 
rage  charged  for  delay  of  such  traffic  in  Canada,  when  no  Canadian  in- 
terest is  involved,  where  the  effect  of  such  order  would  be  to  nullify  a 
previous  order  of  the  Interstate  Commerce  Commission  on  the  same 
subject  matter."  17  C.R.C.  256. 


RATE  THEORIES  AND  PUBLIC  POLICY       233 

have  concerned  facts  which  were  hkely  to  be  material  fac- 
tors in  the  decision,  the  parties  have  been  given  oppor- 
tunity to  enlarge  their  case  and  strengthen  their  pres- 
entation. The  Board  has  not  been  illiberal  in  granting 
rehearings.  Moreover,  it  has  frequently  used  its  own  re- 
sources of  investigation  to  probe  matters  of  importance  as 
deeply  as  the  circumstances  permitted.  In  this  way  im- 
portant considerations  have  been  developed  that  might 
otherwise  have  been  missed.  Consequently  the  final  de- 
cision in  important  cases  has  rested  upon  as  sure  a  foun- 
dation of  fact  as  possible.  In  few  cases  has  the  Board 
fumbled  in  its  conclusions  of  fact.  This  has  made  for  the 
general  stability  of  its  decisions  and  in  relatively  few  in- 
stances have  they  been  overturned  upon  attack  in  the 
Supreme  Court. 

Nor  can  it  be  said  that  the  Board  has  regarded  its  own 
orders  as  sacrosanct.  This  arises  from  the  Board's  view  of 
its  function  as  a  regulative  body,  and  from  a  recognition 
that  changed  conditions  may  make  its  orders  repressive 
instead  of  corrective.  It  pointed  this  out  when  reversing 
a  former  decision  on  the  rating  of  metallic  shingles,  in  the 
following  terms :  — 

The  Board's  function  here  is  concerned  with  the  prevention 
or  correction  of  grievances.  It  is  interested  in  the  logic  of  the 
situation  only  when  the  creation  or  continuance  of  an  illogical 
arrangement  results  in  unjust  discrimination  against  some  por- 
tion of  the  public.  It  is  patent  that  there  is  a  burden  of  obliga- 
tion upon  the  Board  to  attempt  to  redress  such  unjust  discrimina- 
tion where  it  had  been  created  by  the  volition  of  a  railway  or 
railways.  It  needs  no  elaboration  that  the  same  burden  rests  on 
the  Board,  if  as  a  consequence  of  the  continuance  of  one  of  its 
orders,  or  the  emergence  of  conditions  not  existent  when  such 
order  was  made,  an  unjust  discrimination  develops.^ 

In  the  White  Pass  &  Yukon  Railway  Case,  the  Pressed 
Brick  Case,  the  Plymouth  Cordage  Company  Case,  the 

1  5/262. 


234  CANADIAN  RAILWAY  RATES 

Brampton  Ticket  Case,  and  other  instances,  the  Board 
has  shown  readiness  to  suspend  and  rehear  if  more  com- 
plete evidence  was  forthcoming,  and  in  the  event  of  doing 
so,  if  the  fuller  data  adduced  warranted,  has  reversed  its 
former  decision.  The  effect  of  this  attitude  has  been  to 
reduce  appeals  to  the  Supreme  Court  or  Privy  Council, 
to  lead  to  the  fullest  possible  ventilation  of  rate  grievances 
before  the  Board,  and  to  create  popular  confidence  in  its 
integrity. 


CHAPTER  IX 

CONCLUSION 

§  1.  Some  reflection  upon  the  body  of  principles  that 
the  Board  of  Railway  Commissioners  has  developed  in  the 
first  twelve  years  of  its  history  makes  clear  that  its  main 
characteristics  grow  out  of  the  Canadian  situation.  The 
clue  to  the  fundamental  importance  with  which  protec- 
tion to  investment  is  regarded  is  easily  found  in  Canadian 
railway  history  —  the  repeated  grants  of  assistance  to 
lines  not  safely  established,  the  continued  recognition  by 
the  legislative  organs  of  the  Dominion  that  Canada's  rail- 
way development  is  as  yet  unfinished,  the  necessity  of 
avoiding  a  financial  debacle,  —  all  these  factors  are  a 
background  to  the  Board.  It  is  therefore  quite  natural 
that  they  should  influence  its  holdings.  In  one  respect, 
too,  the  Board  has  been  dealing  with  a  highly  dynamic 
situation.  While  the  railway  trafiic  of  Canada  is  divided 
practically  between  three  great  systems,  yet  the  Cana- 
dian Pacific  is  the  only  system  to  have  arrived  at  ma- 
ture strength  and  development.  The  other  two  are  strain- 
ing their  resources,  with  the  formal  approval  of  Parliament, 
to  realize  ambitious  schemes.  Not  until  the  Grand  Trunk 
Pacific  and  Canadian  Northern  have  completed  their  trans- 
continental lines  and  normalized  their  expenditures  and 
revenues  can  the  full  competitive  and  Eastern-z^5.-Western 
rates  problems  be  accurately  appraised  and  receive  a  final 
disposition.  Indeed,  since  the  outbreak  of  the  war  in  1914, 
the  weaker  roads  have  become  so  enmeshed  in  difficulties 
that  it  is  almost  certain  a  radical  Parliamentary  solution 
of  the  whole  problem  will  have  to  be  sought. 

When  the  time  becomes  ripe  for  a  permanent  settlement. 


236  CANADIAN  RAILWAY  RATES 

the  question  of  what  is  the  capital  upon  which  fair  return 
is  to  be  paid  will  have  to  be  probed  into  and  discussed 
more  fully  than  it  has  been  in  the  past.  The  collateral 
problems  of  capital  and  income  which  will  indirectly  arise 
will  require  to  be  determined.  The  larger  and  overshad- 
owing problem  of  whether  rates  shall  be  sanctioned  and 
upheld  which  would  have  been  quite  unnecessary  under  a 
less  grandiose  scheme  of  transcontinental  railroad  service 
for  Canada  must  be  faced.  When  that  time  comes  it  wall 
be  discovered  that  the  body  of  principles  the  Board  has 
developed  does  not  afford  a  sufficiently  wide  basis  to  per- 
mit of  a  satisfactory  and  wise  solution  of  the  question 
even  if  recourse  is  ultimately  had  to  some  form  of  legisla- 
tive relief.  No  criticism  of  the  Board  is  to  be  implied  here, 
but  the  point  desired  to  be  emphasized  is  briefly  this :  inter- 
national rivalry  and  competition  led  Canada  to  build  a 
costly  but  not  fully  utilized  system  of  canals;  the  same 
forces  have  compelled  the  construction  of  equally  costly 
systems  of  railways.  When  the  three  transcontinentals  are 
completed  it  now  seems  likely  that  the  traffic  available 
for  the  long  interregional  haul  will  not  be  sufficient  to  en- 
able all  of  the  facilities  to  be  profitably  utiUzed,  particu- 
larly if  the  Hudson's  Bay  Railway  offer  an  alternative 
route.  Now,  under  these  conditions  can  the  Board  of  Rail- 
way Commissioners,  or  Parliament,  in  support  of  the 
principle  that  fair  retm-n  on  investment  is  the  basis  of  rea- 
sonable rates,  clamp  down  high  rates  on  those  parts  of  the 
railway  systems  where  the  traffic  mU  bear  it.''  Can  Par- 
liament or  the  Board  in  fact,  by  lending  sanction  to  the 
railways  for  such  a  procedure,  be  certain  that  the  end  de- 
sired shall  be  gained.^  The  point  to  be  driven  home  is  that 
elements  inhere  in  the  rate  situation  of  Canada  that  go 
too  deeply  for  anybody  to  solve,  in  the  ordinary  course  of 
events,  on  abstract  principles.  The  ultimate  solution  wdll 
probably  rest  on  compromise  and  may  be  found  by  ParUa- 
ment  itself.    It  may  issue  in  a  large  element  of  Govern- 


CONCLUSION  237 

ment  c^Tiership,  or  a  new  concentration  of  railway  owner- 
ship with  one  of  the  transcontinental  lines  eliminated. 

§  2.  Recognition  must  be  given  to  the  fact  that  the 
pecuHar  features  of  the  Canadian  situation  have  worked 
against  a  large  and  effective  control  by  the  Board  of  rates 
savoring  of  discrimination.  This  is  to  be  accounted  for 
chiefly  by  the  prevalence  of  competition  by  rival  rail  and 
water  carriers.  The  Board  has  put  itself  on  record  that  the 
great  bulk  of  the  traffic  of  Eastern  Canada  moves  on  com- 
pelled rates.  If  there  be  added  to  this  the  holdings,  even 
though  they  be  unimpeachable  in  themselves,  that  branch 
lines,  volume  of  traffic,  joint  rates,  all  justify  differential 
treatment,  and  that  the  Board  has  no  power  to  order  a 
developmental  rate  except  where  one  already  in  force  may 
be  extended,  or  to  equalize  competitive  rates,  it  will  be 
apparent  that  the  power  of  the  Board  to  control  rates  in 
this  respect  is  confined  to  rather  narrow  limits.  At  most, 
it  may  remedy  grosser  cases  of  discrimination  or  excessive 
charge. 

It  was  shown  that  for  secondary  criteria  of  reasonable 
rates  the  Board  has  relied  largely  upon  cost  factors.  The 
only  criticism  to  be  offered  here  is  that  some  of  the  pre- 
sumptions made  appear  to  have  been  accepted  without 
careful  enough  examination.  The  relative  costs  of  moving 
branch-line  traffic  as  compared  with  main-line  traffic  is  a 
case  in  point.  Where  branch  mileage  forms  such  a  large 
proportion  of  the  whole  mileage  of  the  Dominion  the  prin- 
ciple is  one  of  importance  and  should  rest  on  solid  ground. 
The  comparatively  small  use  made  of  the  value  of  the  com- 
modity principle  of  rate-making  has  been  accounted  for  by 
the  nature  of  the  cases  brought  before  the  Board  rather 
than  by  any  refusal  to  admit  its  validity.  Probably  in  the 
future  this  principle  will  receive  more  extensive  applica- 
tion. 

The  position  of  the  Board  in  regard  to  industrial  devel- 
opment from  the  first  has  been  that  it  is  not  concerned 


238  CANADIAN  RAILWAY  RATES 

where  industrial  centers  develop  or  what  form  of  industrial 
organization  appears.  It  has  considered  that  its  duty  lies 
in  the  narrower  field  of  insuring  justice  to  shippers  re- 
gardless of  social  effects.  The  only  modification  to  this 
general  position  is  to  be  traced  in  cases  where  industry 
has  grown  up  under  certain  rate  conditions  the  withdrawal 
of  which  would  destroy  it.  In  cases  of  this  nature  the 
Board  has  recognized,  within  limits,  an  obligation  to  see 
that  the  industry  is  not  injured.  The  general  effect  of  the 
principles  of  rate-making,  however,  has  clearly  been  to 
promote  the  concentration  of  industry  in  the  large  cen- 
ters where  geographical  and  artificial  conditions  combined 
have  been  given  full  weight  by  the  Board.  This  natu- 
rally follows  also  from  the  freedom  that  the  railways 
possess  in  respect  to  encouraging  the  development  of 
industrial  Canada,  through  their  absolute  discretionary 
control  over  the  initial  installation  of  developmental  rates. 

Fundamentally,  the  Board's  position  is  based  on  the 
essentially  English  economic  doctrine  that  social  welfare 
will  be  best  attained  by  giving  the  greatest  freedom  to  the 
principle  of  self-interest.  There  is  complete  absence  in 
the  decisions  of  the  Board  of  the  modern  neo-mercantil- 
istic  tendency  to  manipulate  rates  for  social  ends.  This 
national  indifferentism  is  more  remarkable  in  view  of 
the  strong  current  of  national  feeling  that  has  been  the 
moving  force  behind  the  railway  development  of  Canada. 
It  is  probable,  however,  that  as  a  clearer  apprehension  of 
the  influence  of  railroad  rates  upon  national  development 
is  gained  by  the  Canadian  public,  the  Board  will  not  es- 
cape the  modern  drift  of  tendency. 

These  reflections  all  point  to  the  conclusion  that  the 
Board  of  Railway  Commissioners  of  Canada  has  not 
profoundly  modified  Canadian  industrial  development 
through  its  control  over  rates.  This  is,  indeed,  true.  In- 
directly its  influence  has  been  most  salutary.  The  careful 
scrutiny  given  to  new  tariffs,  the  opportunity  afforded  in- 


CONCLUSION  239 

terests  affected  of  being  heard,  have  undoubtedly  meant 
a  more  equitable  and  harmonious  rate  structure.  But  on 
the  whole,  while  the  Board  has  caused  the  reduction  of 
excessive  rates,  and  has  eUminated  certain  abuses  of  dis- 
crimination, it  has  not  used  its  power  over  rates  and 
tariff  to  influence  the  ordinary  commercial  development  of 
the  Dominion.  It  has  essentially  functioned  as  a  conven- 
ient informal  court  of  justice  rather  than  as  a  regulative 
commission. 


THE  END 


^ 


BIBLIOGRAPHICAL  NOTE 


BIBLIOGRAPHICAL  NOTE 

Material  for  a  general  study  of  Canadian  transportation 
development  falls  roughly  into  three  groups:  first,  official  rec- 
ords, consisting  of  statutes,  annual  departmental  reports,  special 
reports,  Hansard  Debates,  and  company  reports;  secondly, 
general  works,  biographies  and  other  writings  of  statesmen, 
engineers,  and  financiers  intimately  connected  with  Canadian 
transportation  development;  thirdly,  miscellaneous  contempo- 
raneous articles,  notes,  pamphlets,  and  studies.  In  the  nar- 
rower field  of  legal  regulation  and  control  excellent  works  and 
records  are  available  in  law  reports,  the  Annual  Reports  of  the 
Board  of  Railway  Commissioners  for  Canada,  MacMurchy  & 
Dennison*s  (or  Spence's)  Canadian  Railway  Cases,  and  the  series 
of  Judgments,  Orders,  Regulations,  and  Rulings  of  the  Board  of 
Railway  Commissioners  for  Canada.  Three  general  treatises 
are  worthy  of  notice,  MacMurchy  &  Dennison's  Railway  Law 
of  Canada;  Jacobs's  The  Railway  Law  of  Canada;  and  Lefroy's 
Canada's  Federal  System.  Secondary  studies  of  importance  are 
Trout's  The  Railways  of  Canada,  McLean's  "National  Highways 
Overland,"  in  Canada  and  Its  Provinces,  vol.  x;  Skelton's  The 
Railway  Builders  in  the  Chronicles  of  Canada  Series,  and  Myers's 
History  of  Canadian  Wealth,  vol.  i. 

The  present  list  of  references  is  not  exhaustive.  The  writer 
has  found  these  works  and  documents  of  assistance  in  the  prep- 
aration of  his  study. 

I 

Official  Records 

1.  Annual  Reports  of  Companies,  Canadian  Northern  Railway 
System,  Canadian  Pacific  Railway  Company,  Grand  Trunk 
Railway  Company,  etc. 

2.  Annual  Reports  of  the  Department  of  Railway  and  Canals. 
Ottawa. 

3.  Canada  Year  Book  (yearly).  Ottawa.  (Statistical  Abstract 
and  Record  of  Canada,  1886-8;  The  Statistical  Year  Book  of 
Canada,  1889-1904;  present  title  since.) 


244  BIBLIOGRAPHICAL  NOTE 

4.  Canal  Statistics  (yearly).  Department  of  Railways  and 
Canals.  Ottawa. 

5.  Cayley,  W.,  Statements,  Reports,  and  Accounts  of  the 
Grand  Trunk  Company  of  Canada.  Laid  before  the  Legis- 
lative Assembly,  1857. 

6.  Durham,  Earl  of.  Report  of  the  Affairs  of  British  North 
America.    London,  1839. 

7.  Financial  Statements  of  the  Canadian  Northern  Railway 
System,  April  15th,  1916.    Ottawa,  1916. 

8.  Financial  Statements  Respecting  the  Grand  Trunk  Pacific 
Railway  Company.     Ottawa,  1916. 

9.  Fisher,  Hon.  Sydney,  Canada,  its  History,  Production  and 
Natural  Resources.   Ottawa,  1905. 

10.  Hansard  Debates  of  the  House  of  Commons.   Ottawa. 

11.  Interim  Report:  Statistical  Examination  of  Certain  General 
Conditions  of  Transportation  Bearing  on  the  Economic 
Problem  of  the  Proposed  Georgian  Bay  Canal,  by  W.  San- 
ford  Evans,  Chairman,  Georgian  Bay  Canal  Commission. 
Ottawa,  1916. 

12.  Railway  Statistics  of  the  Dominion  of  Canada  (yearly). 
Department  of  Railways  and  Canals.   Ottawa. 

13.  Reports  of  the  Board  of  Railway  Commissioners  for  Canada. 
Ottawa. 

14.  Report  of  the  Commissioners  Appointed  to  Enquire  into 
the  Affairs  of  the  Grand  Trunk  Railway.   Quebec,  1861. 

15.  Reports  upon  Railway  Commissions,  Railway  Rate  Griev- 
ances and  Regulative  Legislation  by  Professor  S.  J.  McLean, 
M.A.,  Ph.D.  Ottawa,  1902. 

16.  Report  of  the  Railway  Rates  Commission;  Sessional  Papers, 
No.  39,  vol.  II,  1895. 

17.  Report  of  the  Royal  Commission  to  inquire  into  Railways 
and  Transportation  in  Canada.   Ottawa,  1917. 

18.  Report  of  the  Royal  Commission  on  Railways,  Hon.  A.  T. 
Gait,  Chairman.   Ottawa,  1888. 

19.  Robinson,  Major,  Final  Report  of  the  OflBcers  employed  on 
the  Survey  of  the  Line  for  the  Quebec  and  Halifax  Rail- 
way with  the  Subsequent  Correspondence  thereon  on  Public 
Works  in  Canada.   London,  1849. 

20.  Statutes  and  Proclamations,  Federal  and  Provincial,  of  the 
Dominion  of  Canada. 


BIBLIOGRAPHICAL  NOTE  245 

n 

General  Works 

1.  Buckingham  and  Ross,  Life  and  Times  of  Hon.  Alexander 
Mackenzie.     Toronto,  1892. 

2.  Canadian  Annual  Review:  Edited  by  C.  Hopkins.  Toronto. 

3.  Cartwright,  Rt.  Hon.  Sir  Richard,  Reminiscences.  Toronto, 
1912. 

4.  Fleming,  C.E.,  Sanford,  The  Intercolonial  Railway.   Mon- 
treal, 1876. 

5.  Gait,  Hon.  A.  T.,  Canada,  1849  to  1859.   Quebec,  1860. 

6.  Hincks,  M.P.,  Hon.  Francis,  Canada,  Its  Financial  Position 
and  Resources.   London,  1849. 

7.  Hincks,  Sir  Francis,  Reminiscences  of  My  Public  Life.  Mon- 
treal, 1884. 

8.  Howe,  Hon.  Joseph,  Speeches  and  Public  Letters.    Boston, 
1858. 

9.  Keefer,  C.E.,  T.  C,  Eighty  Years'  Progress  of  British  North 
America.   Toronto,  1863.  i 

10.  Keefer,  C.E.,  T.  C,  "Montreal"  and  "The  Ottawa":  Two 
lectures  delivered  before  the  Mechanics  Institute  of  Mon- 
treal.    Montreal,  1854. 

11.  Keefer,  C.  E.,  T.C.,  Philosophic  des  Chemins  de  Fer.  4th 
Edition.    Montreal,  1853. 

12.  Kingsford,  C.E.,  William,  The  Canadian  Canals,  Their  His- 
tory and  Cost,  with  an  Enquiry  into  the  Policy  necessary  to 
advance  the  Well-Being  of  the  Province.  Toronto,  1865. 

13.  McLean,  Ph.D.,  S.  J.,  National  Highways  Overland, 
vol.  X,  Canada  and  its  Provinces.  Toronto,  1915. 

14.  Merritt,  William  Hamilton,  Brief  Review  of  the  Origin, 
Progress,  Present  State,  and  Future  Prosperity  of  the  Wei- . 
land  Canal.   St.  Catharines,  1852. 

15.  Morgan,  H.  J.,  Dominion  Register  and  Review.    Montreal. 

16.  Myers,  Gustavus,  History  of  Canadian  Wealth,  vol.  i.  Chi- 
cago, 1914. 

17.  Preston,  W.  T.  R.,  Life  and  Times  of  Lord  Strathcona.  To- 
ronto, 1915. 

18.  Pope,  Hon.  Joseph,  Memoir  of  the  Rt.  Hon.  Sir  John  A. 
MacDonald.   London,  1895. 

19.  Simcoe,  Mrs.  John  Graves,  Diary  of,  with  notes  by  J.  Ross 
Robertson.  Toronto,  1911. 


246  BIBLIOGRAPHICAL  NOTE 

20.  Skelton,  Ph.D.,  O.  D.,  The  Railway  Builders;  A  Chronicle 
of  Overlaud  Highways.  Toronto,  1916. 

21.  Trout,  J.  M.,  &  Edward,  The  Railways  of  Canada,  etc. 
Toronto,  1871. 

22.  Tupper,  Bt.,  Rt.  Hon.  Sir  Charles,  Recollections  of  Sixty 
Years  in  Canada.  London,  1914. 

23.  Watkins,  Bt.,  Sir  E.  W.,  Recollections  by,  Canada  and  the 
United  States.  London,  1887. 

24.  Willson,  Beckles,  The  Life  of  Lord  Strathcona  and  Mount 
Royal.  Boston,  1915. 

25.  Holland,  Bernard,  The  Fall  of  Protection.   London,  1913. 

m 

Pamphlets,  Articles,  Notes 

1.  Allan,  H.,  The  "Times"  and  its  Correspondents  on  Cana- 
dian Railways.  London,  1875. 

2.  Backwoodsman,  By  a.  Statistical  Sketches  of  Upper  Can- 
ada.  3rd  Edition.  London,  1833. 

S.  Bliss,  Henry,  Statistics  of  the  Trade,  Industry  and  Re- 
sources of  Canada  and  other  Plantations  in  British  America. 
London,  1833. 

4.  Bonnycastle,  Sir  Richard  H.,  The  Canadas  in  1841.  Lon- 
don: Henry  Colburn,  1841. 

Canada  and  the  Canadians.  London,  1846. 

5.  Brown,  J.  Gordon,  Essay  on  the  Advantages  of  the  Canals  to 
the  Farmers  of  Canada.   Toronto,  1850. 

6.  Brown,  Thomas  Storrow,  History  of  the  Grand  Trunk  Rail- 
way of  Canada,  compiled  from  public  documents.  Quebec, 
1864. 

7.  Buchanan,  James,  Letter  to  His  Excellency,  Sir  Francis 
Bond  Head,  as  to  Railroads  in  Upper  Canada  and  the 
Means  of  Constructing  Them  Without  the  Aid  of  Foreign 
Capital.  Toronto,  1836. 

8.  Canadiana.  Montreal,  1890. 

9.  Coffin,  Wm.  F.,  The  Canal  and  The  Rail.  Montreal,  1848. 

10.  Croil,  James,  Steam  Navigation  and  its  Relation  to  the 
Commerce  of  Canada  and  the  United  States.  Toronto,  1898. 

11.  Duncan,  James,  The  Canadas  as  They  Now  Are,  by  a  Late 
Resident.  London,  1833. 

12.  Fowler,  Thomas,  The  Journal  of  a  Tour  Through  British 
America  to  the  Falls  of  Niagara.  Aberdeen,  1832. 


BIBLIOGRAPHICAL  NOTE  247 

13.  Godley,  John  Robert,  Letters  from  America.   London,  1844. 

14.  Hogan,  J.  Sheridan,  Canada.  Montreal,  1855. 

15.  Jenkins,  M.P.,  Edward,  The  Times  and  Mr.  Potter  on  Cana- 
dian Railways:  A  Criticism  of  Critics.   London,  1875. 

16.  Martin,  R.  Montgomery,  History  of  Canada.  London,  1836. 

17.  Preston,  T.  R.,  Three  Years'  Residence  in  Canada  from  1837 
to  1839.  London,  1840. 

18.  Proceedings  of  a  Committee  appointed  at  Brockville,  the 
Tenth  of  November,  1830,  on  the  Improvement  of  the  St. 
Lawrence,  with  Reports,  etc.  Brockville,  1831. 

19.  Projector,  By  a,  A  Concise  View  of  the  Inland  Navigation  of 
the  Canadian  Provinces,  etc.   St.  Catharines,  1832. 

20.  Smith,  Robert  Carmichael,  Letter  to  Earl  Grey.  London, 
1850. 

21.  Synge,  Capt.  Millington,  Great  Britain  One  Empire,  On  the 
Union  of  the  Dominions  of  Great  Britain  by  Intercommun- 
ion with  the  East  via  British  North  America.   London,  1852, 

22.  Todd,  Henry  Cook,  Notes  on  Canada  and  the  United  States 
of  America.  Toronto,  1855. 

23.  Tour  Through  Upper  and  Lower  Canada,  A,  by  a  Citizen  of 
the  United  States.  Litchfield,  1799. 

24.  Weld,  Isaac,  Voyage  au  Canada,  pendant  les  annees  1795, 
1796  et  1797.  Paris  [N.D.]. 

IV 

Railway  Law  Books,  Digests,  Judgments 

1.  Annual  Reports  of  the  Board  of  Railway  Commissioners  for 
Canada,  Ottawa.  (Contains  in  Appendix  report  of  principal 
judgments  delivered  during  the  year.) 

2.  Digest  of  Ontario  Case  Law,  together  with  cases  in  the  Su- 
preme and  Exchequer  Courts  of  Canada  and  Canadian  Cases 
in  the  Judicial  Committee  of  the  Privy  Council;  compiled  by 
order  of  the  Law  Society  of  Upper  Canada.  Toronto,  1903. 

3.  Congdon,  F.  T.,  Congdon's  Nova  Scotia  Digest.  Toronto. 

4.  Jacobs,  K.C.,  S.  W.,  The  Railway  Law  of  Canada.  Mon- 
treal, 1909. 

5.  Judgments,  Orders,  Regulations,  and  Rulings  of  the  Board 
of  Railway  Commissioners  for  Canada.  Ottawa.   (J.O.R.R.) 

6.  Lefroy,  A.  H.  F.,  Canada's  Federal  System.  Toronto,  1913. 

7.  MacMurchy  &  Dennison,  Railroad  Law  of  Canada.  2nd 
Edition.  Toronto,  1911. 


248  BIBLIOGRAPHICAL  NOTE 

8.  MacMurchy  &  Dennison,  or  MacMurchy  &  Spence,  Cana- 
dian Railway  Cases.  Toronto.   (C.R.C.) 

9.  Robertson,  K.C,  Andrew,  A  Digest  of  all  the  Reports  Pub- 
lished in  Lower  Canada  to  1863.  Montreal. 

10.  Stephens,  B.C.L.,  C.  H.,  Quebec  Law  Digest  from  1810  to 
1877.  Montreal. 

11.  Stevens,  J.  G.,  Stevens'  Digest  1825  to  1879.  Toronto. 

V 

Magazines 

1.  Canadian  Railway  and  Marine  World.  Toronto. 

2.  Railway  Age  Gazette.  Chicago. 


LIST  OF  CASES  CITED 


LIST  OF  CASES  CITED 

Algoma  Central  and  Hudson  Bay  Ry.  Co.  vs.  Grand  Trunk  Ry. 

Co.,  4/254;  8  C.R.C.  46 .   219,  228 

Almonte  Knitting  Co.   vs.  The  Canadian  Pacific  and  Michigan 

Central  Ry.  Co.,  1/71;  3  C.R.C.  441 163 

American  Coal  &  Coke  Co.  vs.  Michigan  Central  Ry.  Co.,  11/115; 

17  C.R.C.  256 222,  231 

Anchor  Elevator  &  Warehousing  Co.  et  al.  vs.  Canadian  Pacific  Ry. 

Co.,  4/259;  9  C.R.C.  175 193 

Application  for  through  rate  of  freight  from  Midland,  Ontario,  to 

Cleveland,  Ohio,  VI  J.O.R.R.  491 153, 180 

Atikokan  Iron  Co.,  Ltd.,  Complaint  re  Switching  charges,  7/257; 

12  C.R.C.  6 193 

Attorney-General  vs.  The  Ontario,  Simcoe  and  Huron  Ry.,  6  G.C.R. 

446 .     75 

Auger  &  Son  and  D'Auteuil  Lumber  Co.,  Complaint  re  Change  in 

rates  on  Pulpwood,  11/165;  19  C.R.C.  401 131 

Aylmer  Condensed  Milk  Co.  vs.  American  Express  Co.,  17  C.R.C. 

100 155 

Battle  Creek  Toasted  Corn  Flakes  Co.  re  C.L.  Minimum  on  Toasted 

Corn  Flakes,  6/312;  12  C.R.C.  11 188 

Berliner  Gramophone  Co.  vs.  Canadian  Freight  Association,  8/37; 

14  C.R.C.  175 187 

W.  S.  Bilton,  Complaint  against  excessive  freight  charges  on  coal, 

10/308 171 

Blaugas  Co.  of  Canada  vs.  Canadian  Ry.  Cos.,  6/339;  12  C.R.C. 

303 . 196,  202 

Blind  River  Board  of  Trade,  Complaint  re  rates  on  bar  iron,  9/261 ; 

15  C.R.C.  147 142, 144,  218 

Bowlby,  C.  A.  et  al.  vs.  Halifax  and  South  Western  Ry.  Co.,  VI 

J.O.R.R.  367 145, 151, 156 

Brampton  Commutation  rates  Case,  4/245;    8  C.R.C.  42 206 

Brampton  Commutation  rates  Case,  6/166;  11  C.R.C.  370 206,  225 

British  American  Oil  Co.  vs.  Grand  Trunk  Ry.  Co.  (Stoy  Case), 

5/211 ;  9  C.R.C.  178 172,  215,  230 

British  Canadian  Canners  vs.  Grand  Tmnk  Ry.,  14  C.R.C.  346.  .  .  .  193 
British  Columbia  News  Co.  re  express  rates  on  Magazines,  7/35; 

13  C.R.C.  176 209 

British  Columbia  Sugar  Refining  Co.  vs.  Pere  Marquette  Rd.  Co., 

5/279;  10  C.R.C.  169 138, 157 

Brown  vs.  Quebec  &  Lake  St.  John  Ry.  Co.,  18  C.R.C.  342 122 

Cadwell  Sand  and  Gravel  Co.,  Complaint  re  rate  on  pressed  bricks 
from  Bradford,  Penn.,  to  Windsor,  Ont.,  8/44;  14  C.R.C.  172 

129,  154,  213,  231 


252  LIST  OF  CASES  CITED 

Canadian  Canners  Limited  vs.  Canadian  Pacific  Ry.  Co.,  3/126  . .  .   174 

Canadian  China  Clay  Co.  vs.  Canadian  Northern  Ry.  Co.  et  al., 
10/326 158, 162, 169 

Canadian  Freight  Association  vs.  Cadwell  Sand  and  Gravel  Co., 
9/271;  15  C.R.C.  156..... 185 

Canadian  Freight  Association  vs.  Fruit  Growers  Association  of 
Ontario,  5/245 125 

Canadian  Freight  Association  and  Industrial  Corporation,  1/69; 
3  C.R.C.  427 203 

Canadian  Lumbermen's  Association  vs.  Grand  Trunk  and  Canadian 
Pacific  Ry.  Cos.,  6/138;  10  C.R.C.  306 124, 132 

Canadian  Lumbermen's  Association  and  Montreal  Board  of  Trade 
vs.  Grand  Trunk  Ry.  Co.  et  al.,  17  C.R.C.  102 144 

Canadian  Manufacturers'  Association,  Complaint  re  classification  of 
Metallic  shingles,  1/71;  4/148 _.  . 198 

Canadian  Manufacturers'  Association  vs.  Grand  Trunk  and  Cana- 
dian Pacific  Ry.  Cos.  re  rates  on  brick,  gravel,  etc.,  11/154 184 

Canadian  Northern  Express  and  Central  Ontario  Ry.  Co.  re  in- 
crease in  rates,  8/278;  14  C.R.C.  183 168 

Canadian  Northern  Ontario  Ry.  Co.  vs.  Grand  Trunk  and  Canadian 
Pacific  Ry.  Cos.  (Muskoka  rates  case  Nos.  1  and  2),  5/254; 
7  C.R.C.  289;  10  C.R.C.  139 219 

Canadian  Northern  Railway  re  Special  freight  tariff  C.R.C.  No. 
E-132,  11/274 205,  208 

Canadian  Oil  Cos.  Limited,  application  for  a  rate  of  56  cents  per 
100  pounds  from  Petrolia,  Ont.  to  Winnipeg,  Man.,  on  petroleum 
and  its  products,  7/206;  12  C.R.C.  351 141, 188,  202,  203,  216 

Canadian  Oil  Cos.  Limited  vs.  the  Grand  Trunk  and  Pacific  Ry. 
Cos.,  7/194 160, 171 

Canadian  Piano  &  Organ  Manufacturers'  Association,  application 
for  the  classification  of  Musical  Instruments,  6/317 190 

Canadian  Portland  Cement  Co.,  application  for  a  reduced  through 
rate  on  bituminous  coal  from  Black  Rock,  N.Y.  to  Marlbank, 
Ontario,  5/231;  9  C.R.C.  209 126, 151,  202 

Cartage  Tolls,  8/67;  14  C.R.C.  372 125 

Cartier  Stop-over  Privilege  case,  4/256;  9  C.R.C.  227 193 

City  of  Toronto  and  Town  of  Brampton  vs.  Grand  Trunk  and  Cana- 
dian Pacific  Ry.  Cos.  (Brampton  Commutation  rates  case  No.  2), 
6/166;  11  C.R.C.  370 206,  226 

Coal,  increase  in  rate  on,  from  Niagara  frontier,  VI  J.O.R.R.  329. .   169 

Coal,  transportation  traflBc  practices,  VI  J.O.R.R.  438 223 

Commodity  rates  to  Pacific  Coast  Terminals  and  Intermediate 
Points,  32  I.C.C.R.  611 152 

Commodity  Rates  to  Pacific  Coast  Terminals  and  Intermediate 
Points,  40  I.C.C.R.  35 152 

Commutation  Tickets,  between  St.  Hyacinthe  and  Montreal,  9/295 .   207 

Consimaers'  Gas  Co.  Complaint  re  rates  on  gas  house  coke,  8/265.  .   160 

Continental  Oil  Co.  Ltd.  et  al.,  for  a  reduction  in  the  rate  on  oil 
products  and  oil,  7/212;  13  C.R.C.  156 158 

Cowichan  Creamery  Association,  Complaint  re  rates  on  Alfalfa  Meal, 

11/108;  18  C.R.C.  39 196 

Cream  rates  on  express  shipments,  7/268;  S/ll;  14  C.R.C.  142; 
17  C.R.C.  112 98, 183 


LIST  OF  CASES  CITED  253 

Crowsnest  Pass  Co.  vs.  Canadian  Pacific  Ry.,  4/252;  8  C.R.C.  33.  .   161 
Cut   Glassware  Importers  vs.   Canadian  Freight  Association,    12 
C.R.C.  10;  6/312 197 

Davy  vs.  Niagara,  St.  Catharines  &  Toronto  Ry.  Co.  and  the 
Michigan  Central  Ry.  Co.,  7/189;  9  C.R.C.  493;  12  C.R.C.  61 

124,  133,  230,  231 

Dawson  Board  of  Trade  vs.  White  Pass  and  Yukon  Ry.  Co.,  5/219; 
6/346;  7/216;  9  C.R.C.  190;  11  C.R.C.  402;  13  C.R.C.  527  102, 103, 106 

Dominion  Millers'  Association,  Complaint  re  rates  on  flour  to  Mari- 
time Provinces,  7/191 154 

Dominion  Sugar  Co.  vs.  Grand  Trunk  Ry.  Co.  et  al.,  17  C.R.C.  231 .    151 

Dominion  Sugar  Co.  vs.  Grand  Trunk  Ry.  Co.  et  al.,  17  C.R.C. 
240. 121,151 

Dominion  Sugar  Co.,  Application  for  re-adjustment  of  rates  on 
sugar  in  carlots  from  Wallaceburg,  Ont.,  to  Winnipeg  and  other 
Manitoba  points,  etc.,  7/243 202 

Dominion  Transportation  Co.  vs.  Algoma  Central  &  Hudson  Bay 
Ry.  Co.,  17  C.R.C.  422 219 

Doolittle  &  Wilcox  vs.  Grand  Trunk  and  Canadian  Pacific  Ry.  Co. 
(Stone  Quarry  Rates  Case),  4/244;  8  C.R.C.  10 126 

Doucet ;  Freres  vs.  Canadian  Pacific  Ry.  Co.,  VI  J.O.R.R.  286 .  .   158, 180 

Eastern  Rates  Case,  VI  J.O.R.R.  133,  189,  201,  203,  241 

86,  93, 116, 140, 147,  214,  224,  230 
Edmonton,  Clover  Bar  Sand  Co.  vs.  Grand  Trunk  Pacific  Ry.  Co., 

17  C.R.C.  95 158,  209 

Edmonton,   Dunvegan   and   British   Columbia  Ry.   Co.,    10/340; 

19  C.R.C.  395 122, 167 

Elder  Dempster  &  Co.  vs.  Canadian  Pacific  and  Grand  Trunk  Ry. 

Cos.,  5/281 ;  10  C.R.C.  334 162,  217 

Essex  Terminal  Ry.,  re  removal  as  a  participating  carrier  in  tariffs 

and  supplements  applicable  to  international  traffic,  10/l38 192 

Eureka  Co.  and   Brick  Co.  vs.  The   Canadian    Pacific   Ry.  Co., 

6/328 184 

Express  Companies  Investigation,  6/240 170,  175,  196 

Express  Investigation,  9/309 119 

Farmers'  Dairy  and  Produce  Co.  vs.  Canadian  Pacific  Ry.  Co., 
17  C.R.C.  106 203 

Flannelette  Sheets,  re  classification  of,  9/271 198 

Fonthill  Gravel  Company,  Limited,  Application  for  reduction  in 
rates  on  gravel,  10/120;  17  C.R.C.  248 196 

Fredericton,  N.B.,  Board  of  Trade,  Complaint  re  Discrimination, 
10/255 155, 176 

Fruit  Growers'  Association  of  Ontario,  Application  for  Stoppage-in- 
transit  privilege,  8/275;  14  C.R.C.  370 193 

Fullarton  Liunber  &  Shingle  Co.  vs.  Canadian  Pacific  Ry.  Co., 
9/308;  17  C.R.C.  79 184 

Galbraith  Coal  Co.  vs.  Canadian  Pacific  Ry.  Co.,  6/149;  10  C.R.C. 

325 183, 185 

Gas  House  Coke  Rates  Case,  6/367;  12  C.R.C.  289;  8/265 160 


254  LIST  OF  CASES  CITED 

Goose  Lake  District,  Saskatchewan,  Unmarketed  and  unstored  grain 
and  transportation  thereof,  VI  J.O.R.R.  1,  3,  294,  312 223 

Graham  Co.  Limited,  Complaint  against  the  freight  rates  on  desic- 
cated vegetables,  VI  J.O.R.R.  267 158, 163,  202 

Grand  Trunk  Ry.  Co.,  Application  for  permission  to  make  reduced 
rates  on  Coal  used  for  manufacturing  purposes,  1/70;  3  C.R.C.  438  204 

Grand  Trunk  Ry.  Co.  vs.  Canadian  Northern  Ry.  Co.  re  Union 
Station,  Toronto,  11/189 229 

Grand  Trunk  Railway  vs.  City  of  Toronto,  1  C.R.C.  92;  32  O.R.  120    88 

Gravel,  re  rates  on,  11/145 209 

Great  Northern  Ry.   Co.   vs.   Canadian  Northern  Ry.   Co.    (Ft. 
William  Coal  case),  6/361;  11  C.R.C.  424 218 

W.  J.  Guest  Fish  Co.,  Complaint  of  re  express  rates  on  fresh  fish  in 
carloads  from  Vancouver  to  Winnipeg,  10/197;  18  C.R.C.  1 

155, 172,  206 

Hay  &  Co.,  Limited,  and  J.  H.  Still  Manufacturing  Co.,  Limited,  re 

Minimimi  loading  requirements  for  logs,  VI  J.O.R.R.  474.  . .    159,  211 
Hagersville  Crushed    Stone  Co.   vs.   Michigan   Central    Ry.   Co., 

VI  J.O.R.R.  419 164 

Heated  Car  Service,  VI  J.O.R.R.  374 190 

Howell  Co.,  Complaint  against  freight  rates  on  Import  Wood  Pulp, 

9/297;  17  C.R.C.  97 182 

Hudson  Bay  Milling  Co.,  re  differences  in  freight  charges  between 

G.N.R.  Co.  and  C.P.R.  Co.,  Tahno,  B.C.,  9/274;  16  C.R.C.  254 

132, 177, 224 
Hull  Electric  Ry.  Co.,  Application  for  approval  of  standard  passenger 

rate  of  2J  cents  a  mile,  10/339 121 

Icing  Charges,  VI  J.O.R.R.  81 190 

Imperial  Oil  Co.,  Limited,  Application  for  an  order  directing  reduc- 
tion in  freight,  on  petroleum  and  petroleum  products  in  carloads 

from  Vancouver  east  to  Alberta  points,  10/124 202 

Imperial  Rice  Milling  Co.,  Application  for  reduction  in  rates  on  rice, 

etc.,  8/270;  14  C.R.C.  375 157 

Imperial  Steel  and  Wire  Company,  Limited,  vs.  Grand  Trunk  Ry. 

Co.,  6/359 222 

Import  Rates,  VI  J.O.R.R.  380 100,  122, 131 

Increase  in  Freight  Rates  on  Canned  Goods  and  Hardware  to  points 

on  the  Pacific  Coast,  Complaint  against,  VI  J.O.R.R.  501 152 

International  and  Toronto  Board  of  Trade,  rate  cases,  3/5.  ...   172,  231 
International  Paper  Co.  et  al.  vs.  Grand  Trunk  Ry.  Co.  et  at.  (Inter- 
national Pulpwood  Rates  Case),  8/271;  15  C.R.C.  110 

127, 182,  224,  229 

Interswitching,  4/214;  7  C.R.C.  302 190 

Interswitching  and  free  cartage,  11/270 193 

Joint  Freight  and  Passenger  Tariffs  against  the  sum  of  the  locals, 

5/216;  10  C.R.C.  343 100, 173, 174, 175,  227 

Joint  rates  and  concurrence  notices,  11/253;  19  C.R.C.  379 222 

Joint  tariffs,  VI  J.O.R.R.  406 222 

Kemp  Manufacturing  Co.  and  Winnipeg  Ceiling  &  Roofing  Co., 
Complaint  re  Metallic  Shingles,  5/262;  10  C.R.C.  161 198, 233 


LIST  OF  CASES  CITED  255 

Laing-Harris  Coal  and  Grain  Company  vs.  Atchison,  Topeka  and 

Santa  Fe  Ry..  12  I.C.C.  Rep.  556 191 

Lake  Superior  Paper  Co.,  Ltd.,  vs.  Algoma  Central  &  Hudson  Bay 

Ry.  Co.,  VI  J.q.R.R.  391 131, 161 

Lamontagne  Limited,  Application  re  mixed  carloads,  7/186;   12 

C.R.C.  291 188 

H.  E.  Ledoux  Co.,  Limited,  Application  for  C.L.  Rating  on  Cigars, 

7/185;  12  C.R.C.  3 187, 197 

London  &  Lake  Erie  Ry.  Co.  vs.  the  Michigan  Central  Ry.  Co.  and 

the  London  &  Pt.  Stanley  Ry.  Co.,  VI  J.O.R.R.  89 222 

London  Interswitching  Case,  l/86 190 

Malkin  &  Sons  vs.  Grand  Trunk  Ry.  Co.  (The  Tanbark  Case), 
4/268;  8  C.R.C.  183 164, 165 

Manitoba  Free  Press  et  al..  Complaint  relative  to  express  classifi- 
cation of  newspapers,  5/269;  7/286 99, 193 

Massiah  vs.  Canadian  Pacific  Ry.  Co.,  17  C.R.C.  88 207 

Michigan  Sugar  Co.  vs.  Chatham,  Wallaceburg  &  Lake  Erie  Ry. 
Co.,  6/205;  11  C.R.C.  353 224 

Thomas  Miles  Sons,  Complaint  re  rates  on  gas  house  coke,  6/367; 
12  C.R.C.  289 160 

Millfeeds,  re  rates  on  from  Lethbridge,  Alta.,  to  Sweet  Grass, 
Montana,  9/285 181 

Milling-in-Transit  and  grain  in  Dominion  Government  Interior 
Elevators,  11/171 193 

Milling-in-Transit  rates,  St.  Thomas,  Ont.,  9/287;  16  C.R.C.  425. . .   219 

Montreal  Board  of  Trade  Application  re  rates  on  corn  and  cornmeal, 
7/253;  14  C.R.C.  351 199 

Montreal  Board  of  Trade  Application  for  milling-in-transit  privilege 
for  corn,  file  12384,  cited  8/276 193 

Montreal  Board  of  Trade  vs.  Canadian  Pacific  Ry.  Co.  et  al.,  18 
C.R.C.  6 174 

Montreal  Board  of  Trade,  Complaint  against  proposed  increase  in 
rates  on  hay  shipped  to  points  in  Eastern  United  States,  7/238  . .   125 

Montreal  Board  of  Trade  vs.  Grand  Trunk  and  Canadian  Pacific  Ry. 
Cos.,  re  grain  rates,  6/146 180 

Montreal  Produce  Merchants'  Association,  Complaint  against  ad- 
vance in  winter  export  rates  on  butter  and  cheese,  3/149;  4/222 

99,  209,  215,  229 

Montreal  Produce  Merchants'  Association  vs.  Grand  Trunk  Ry.  and 
Canadian  Pacific  Ry.  Cos.,  5/224 193,  228 

Moosejaw  Board  of  Trade,  Complaint  re  Coal  rates,  10/241 ...   117, 169 

Mountain  Lumber  Manufacturers'  Association  vs.  Canadian  Pacific 
Ry.  (Golden  Toll  Case),  17  C.R.C.  285 182 

Nanaimo  Board  of   Trade  vs.  Canadian  Pacific  Ry.  Co.,  11/288; 

VI  J.O.R.R.  9 145,  214 

North  Bay  Interchange  Traffic  Case,  VI  J.0.R.R.S.4 219, 229 

Oliver-Serim  Lumber  Co.  vs.  Canadian  Pacific  and  Esquimalt  & 
Nanaimo  Ry.  Cos.,  17  C.R.C.  324 171,  228 

Ontario  Fruit  Growers'  Association  vs.  Canadian  Pacific  Ry.  Co.  et 
al.,  1/69;  3  C.R.C.  4.S0 190 

Herbert  Oyler  vs.  Dominion  Atlantic  Ry.,  11/237 167 


256  LIST  OF  CASES  CITED 

Palmer  vs.  Grand  Junction  Ry.  Co.,  4  M.  &  W.  749 74 

Panama  Canal  rates  and  transcontinental  traffic,  11/183 142,  210 

Pea  Millers"  Association  vs.  Canadian  Ry.  Cos.,  l/70;  3  C.R.C.  433  214 
James  Pendor  &  Co.,  Complaint  re  rates  on  iron  goods  from  St.  John, 

N.B.,  8/47  (File  10720) 124 

Plain  &  Company  vs.  Canadian  Pacific  Ry.  Co.,  5/208;  9  C.R.C.  222  150 
Plymouth  Cordage  Co.  vs.  Grand  Trunk  Ry.  Co..  et  al.,  5/242; 

7/237;  13  C.R.C.  140 •.•■•■•. 230 

Portage  Board  of  Trade,  Complaint  against  special  freight  tariffs  of 

the  Canadian  Pacific  Ry.  Co.,  4/265;  8  C.R.C.  180 173,  204 

Port  Arthur  and  Fort  William  Boards  of  Trade  vs.  Canadian  Pacific 

Ry.  Co.,  18  C.R.C.  406 156 

Quebec  Central  Ry.,  re  jurisdiction  of  the  Board,  9/139 228 

Rat  Portage  Lumber  Co.  vs.  Canadian  Northern  Ry.  Co.,  6/215 .  . .  193 
Red  Mountain  Ry.  Co.  vs.  Columbia  and  Western  Ry.  Co.,  5/229. .  125 
Regina  Board  of  Trade  vs.  Canadian  Pacific  Ry.  Co.  et  al.  (Regina 

Rate  Case),  6/169;  7/248;  9/277;  11  C.R.C.  380 177, 178 

Richardson  &  Sons,  Complaint  re  grain  rates  from  Kingston,  4/302  180 

Riley  vs.  Dominion  Express  Company,  17  C.R.C.  113 227 

Riverside  Lumber  Co.,  Limited,  Complaint  re  rates  charged  by  the 

Canadian  Pacific  Ry.  Co.  from  Viceroy  to  Assiniboia,  10/202. . . .  213 
Roberts,  E.  W.,  Complaint  against  the  Canadian  Pacific  Ry.  Co.  for 

refusal  to  establish  a  special  winter  rate  on  "rough  unpeeled  pulp 

wood,"  10/343 202 

St.  David's  Sand  Co.  vs.  Grand  Trunk  and  Michigan  Central  Ry. 
Cos.,  17  C.R.C.  279 187 

Scott  vs.  Middleton,  33  U.C.R.  580.  .. 75 

Seaman  Kent  Co.,  Limited,  vs.  Canadian  Pacific  Ry.  Co.,  7/254; 
13  C.R.C.  420 133,197 

Shingle  Agency  of  British  Columbia;  Application  re  complement  of 

nails  with  shingle  shipments,  VI  J.O.R.R.  457 211 

Application  for  stop-over  privilege,  VI  J.O.R.R.  488 211 

Sinclair,  C.  M.,  Complaint  on  freight  charges  on  household  effects, 
11/129 174 

Spanish  River  Pulp  &  Paper  Mills,  Limited,  Complaint  re  over- 
charge on  shipments  of  machinery,  11/259;  19  C.R.C.  381 204 

Stamford  Junction  Case,  3  C.R.C.  256. 135 

Stockton  &  Mallinson  vs.  Canadian  Pacific  Ry.  freight  rates,  5/207; 
9  C.R.C.  165 99, 124 

Stockton  &  Mallinson  vs.  Dominion  Express  Company,  8/276 232 

Sudbury  Board  of  Trade  vs.  Canadian  Pacific  Ry.  Co.,  5/277 168 

Sudbury  Brewing  and  Malting  Co.  vs.  Canadian  Pacific  Ry.  Co.  re 
MiUing-in-transit  privilege,  ll/lOl;  18  C.R.C.  410 193,211,212 

Supplement  No.  1  to  the  Canadian  Classification  No.  15,  Applica- 
tion for  approval  of,  re  ratings  on  Tobacco,  6/221 133 

Sydenham  Glass  Company  vs.  Grand  Trunk  Ry.  Co.  et  al.,  l/67; 
3  C.R.C.  409 213 

Taylor  Co.  and  the  Canada  Flour  Mills  vs.  Canadian  Pacific  and 
Pere  Marquette  Ry.  Cos.,  VI  J.O.R.R.  23 190 


LIST  OF  CASES  CITED  257 

Telegraph  Tolls  Case,  VL  J.O.R.R.  29  Jf. 

86,  111,  112, 113, 169, 170, 177, 178, 180, 185,  205,  207 

Tower  Oiled  Clothing  Co.,  Application  for  carload  rating  on  oiled 
clothing,  1/69;  3  C.R.C.  417 188 

Traffic  Congestion,  VI  J.O.R.R.  462. 223 

Two  Creek  Grain  Growers'  Association  vs.  Canadian  Pacific  Rail- 
way, 11/156;  18  C.R.C.  403 166 

United  Factories,  Limited,  vs.  Grand  Trunk  Ry.,  l/69;  3  C.R.C.  424  214 

Vancouver    Eastbound    vs.    Winnipeg    Westbound    rates,    3/133; 

7  C.R.C.  125 141, 153, 181 

Vancouver  —  Prince  Rupert  Meat  Co.  vs.  Great  Northern  Ry.  Co., 

7/233 99 

Weganost  vs.  Grand  Trunk  Ry.  Co.  (Brampton  Commutation  Rates 

Case  No.  1),  4/245;  8  C.R.C.  42 206 

Western  Ontario  Municipalities  vs.  Grand  Trunk  Ry.  Co.  et  al., 

18  C.R.C.  329 121 

Western  Rates  Case,  File  18755,  17  C.R.C.  123, 

93, 105, 106, 107, 135, 153, 179 
E.  Williams  &  Co.  et  al..  Complaint  against  rates  on  stone  from 

Stonewall  to  Winnipeg,  1/73 99,  215 

Winnipeg  Jobbers'  Association  vs.  Canadian  Pacific  Ry.  Co.  et  al. 

(Winnipeg  Rate  Case),  4/263;  8  C.R.C.  175 204 

Wire  Fencing,  Commodity  rates  on,  8/58;  14  C.R.C.  377 180 

Wood  Ashes,  Complaint  of  Chas.  Stevens  against  rates,  VI  J.O.R.R. 

347 170 

WVlie  Milling  Co.  vs.  Canadian  Pacific  Ry.  Co.  and  Kingston  and 

Pembroke  Ry.  Co.,  7/250;  14  C.R.C.  5 155,  228 


INDEX 


INDEX 


Acworth,  W.  M.,  50. 

Allan,  Hugh,  38. 

Arbitraries,  61,  62. 

Atlantic  &  St.  Lawrence  Railway, 

77. 

Blair,  Hon.  A.  G.,  84. 

Blake,  Hon.  Edward,  41. 

Board  of  Railway  Commissioners 
for  Canada,  possible  limitations 
on  power,  68-71,  73;  "independ- 
ent" tribunal  recommended, 
79-80;  establishment  and  powers 
conferred,  83-94;  regulative  pow- 
ers, 233;  control  of  rates.  237; 
laissez-faire  point  of  view,  200, 
238. 

Branch  line  rates,  163-67,  237. 

British  Columbia,  36,  37. 

British  Yukon  Railway  Company, 
n.  101. 

Buckingham  and  Chandos  letter  re 
line  of  the  Intercolonial  Railway, 
30. 

Calgary  &  Edmonton  line,  43. 

Canadian  Express  Company,  120. 

Canadian  Freight  Association,  58. 

Canadian  Northern  Railway,  his- 
tory, 48-51;  government  aid  re- 
ceived, 52,;57;  effect  of  rate  reduc- 
tions, 105,  106,  109;  telegraph 
line,  112,  114;  express  company, 
120,  148,  235. 

Canadian  Pacific  Ocean  Service 
Company,  44. 

Canadian  Pacific  Railway  history, 
38-44,  50,  57,  69;  Crowsnest  Pass 
Railway  agreement,  78,  102,  105, 
109;  telegraph  company,  112; 
possibility  of  secret  reserve,  115, 
190-91,  235. 

Canadian  Railway  Act,  88-92. 

Canadian  rate  territories,  59. 

Canals,  8-13,  15,  148. 


Capital,  need  for,  Canadian  Rail- 
ways, 110. 

Carload  and  less  than  carload  ship- 
ments, 186-89. 

Cartage  tolls,  125. 

Cartwright,  Sir  Richard,  37. 

Central  Freight  Association,  61. 

Chambly  Canal,  10. 

Champlain  &  St.  Lawrence  Rail- 
way, 76. 

Charter  restrictions  on  rates,  73, 
76-79. 

Chicago  &  Grand  Trunk  Railway, 
116. 

Class  tariffs,  61,  83. 

Classification,  Canadian  described, 
58-69;  official  classification,  61, 
147;  uniform  classification  sug- 
gested, 80;  grievances  investi- 
gated, 83;  Board's  control  over, 
91,  93,  198. 

Coal  rates,  65-66,  183,  218. 

Commercial  policy,  Montreal  and 
New  York,  4,  n.  6;  waterways 
vs.  railways,  27;  in  the  North- 
west, 35,  53;  transcontinental 
traffic,  63;  coal  and  grain,  66; 
effect  of  rival  American  lines  on 
regulation,  69,  203,  214,  215,  224, 
237. 

Commodity  rates,  61,  64-68,  175, 
205. 

Common  law  on  rates,  73-76. 

Commutation  rates,  121,  206-07, 
225. 

Competition,  recognized  by  statute, 
91,  137;  water  competition,  136- 
54;  rail  competition,  154-56, 161; 
long  and  short  haul  and  competi- 
tion, 175;  "pervasive"  competi- 
tion, 176;  competition  and  inter- 
switching,  191;  competition  for 
traffic,  203,  216-26;  237. 

Conservative  policy  re  the  Pacific 
Railway,  39. 


262 


INDEX 


Corn  Laws,  efiFect  of  repeal  on  Ca- 
nadian industry,  18. 

Cost  factors  and  excessive  rates, 
original  cost,  101-11;  cost  of  re- 
production, 112;  cost  of  mainte- 
nance, 123  ff. ;  net  increase,  125; 
widened  basis  of  discretion,  127- 
32;  cost  factors  and  discrimina- 
tion, 163-94;  branch  line  traffic, 
163-67;  joint  movements,  167- 
78;  long  vs.  short  haul,  169; 
density  of  traffic,  177;  gradients, 
181-83;  volume,  185;  C.L.  and 
L.C.L.,  186-89;  special  services, 
189;  interswitching,  190;  news- 
paper, 194,  237. 

Crowsnest  Pass  Railway,  44;  agree- 
ment, 78. 

Density  of  traffic,  influence  on  rates 
in  Western  Canada,  150;  does  not 
affect  standard  tariffs,  166;  dis- 
cussed, 180. 

Depreciation,  112. 

Developmental  rates,  202-16;  dis- 
cussed, 225,  237. 

Discretion  of  railway  companies  in 
meeting  competition,  137,  143- 
44,  151,  153,  157,  162,  214;  in 
granting  commodity  and  develop- 
mental rates,  205,"^  209-10,  213- 
15;  commutation  ticket  rates, 
206-08;  milling  in  transit  privi- 
leges, 21 1-12;  discussed,  212, 224- 
26,  237. 

Discrimination,  c.  vii,  134-200;  75, 
79,  83,  91,  97,  98,  203-08,  213, 
223;  discussed,  237,  239. 

Distance,  126,  166-67,  177-80,  181, 
183,  237. 

Distributive  centers,  61-62. 

Dominion  Government,  46,  49,  50, 
52,  76,  78,  79/.,  108,  235. 

Drayton,  Sir  H.  L.  (Chief  Com- 
missioner), 50,  108,  109,  119. 

Duluth,  South  Shore  &  Atlantic 
Railways,  43,  440. 

Earnings,  ratio  of  net  to  gross,  120- 

21,  122. 
Edmonton,  Dunvegan  and  British 

Columbia  Railway,  n.  56,  122. 
English  Act,  1845,  79. 


English  precedents,  99,  227-28. 

Erie  Canal,  6,  8,  19. 

European  and  North  American  line, 

21. 
Excessive  rates,  c.  vi,  97-133;  fair 

return,  101  /,  209,  237,  239. 
Export  rates,  161-63,  217. 
Express  rates,  119-21. 

Fair  return  on  investment,  101-22; 

discussed,  235-36. 
Fielding,  Hon.  W.  S.,  n.  47. 

Gait,  Hon.  A.  T.,  20. 

Gazette,  Montreal,  n.  77. 

Georgian  Bay  Canal,  148. 

Globe,  Toronto,  41. 

Government  ownership,  32,  237. 

Governor-in-Council,  79,  87,  101, 
102,  201. 

Grades,  181-83. 

Grain  rates,  66-67. 

Grand  Trunk  Pacific  Railway  his- 
tory, 44-48,  50,  53;  clay  belt,  55, 
57,  105,  106,  109;  Telegraph  Co., 
112;  debt  to  Grand  Trunk,  117, 
148,  235-37. 

Grand  Trunk  Railway,  17;  history, 
24-28;  reorganized,  28,  69;  esti- 
mated and  actual  cost,  42,  45,  48, 
49,  50,  52,  116-19,  190-91. 

Great  North  Western  Telegraph 
Company,  112. 

Great  Western  Railway,  22,  28,  33; 
Act,  n.  74. 

Grey,  Earl,  Colonial  Secretary,  21. 

Group  rates,  183-85. 

Haggart,  Hon.  John,  81. 
Heated  car  service,  190. 
Hincks,  Hon.  Francis,  n.  19,  22/. 
Howe,  Joseph,  21  /.,  n.  34. 
Hudson  Bay  Company,  36. 
Hudson's  bay  route,  149-50,  236. 
Hull  Electric  Railway,  121. 

Icing  charges,  190. 

Import  rates,  131. 

Industrial  development,  effect  of 
commission  on,  238. 

Intercolonial  Railway,  17,  22;  con- 
struction, 28-32,  53,  139. 


INDEX 


263 


International  rates,    68,    92,    116, 

230-32. 
Interoceanic  Railway,  38. 
Interstate  Commerce  Commission, 

80,  99,  1-17,  231. 
Interswitching,  93,  125,  190-93. 

Joint  rates,  68,  92,  162,  167-76;  for 
express  companies,  170,  222,  237. 

Judicial  aspect  of  Board's  practice, 
226,  239. 

Laurier,  Sir  Wilfrid,  n.  42,  46. 

Legal  rate,  176. 

Liberal  party,  policy  re  Pacific  Rail- 
way, 37,  38,  41;  Grand  Trunk 
Pacific,  46. 

Long  and  short  haul,  revision  of 
1888,  81;  Act  of  1903,  91,  156; 
discussed,  169-76. 

Long  haul,  originating  corner's 
right  to,  in  joint  routes,  217-23. 

Lumber  rates,  67;  mileage  equiva- 
lents, 182;  group  rates,  184. 

MacDonald,  Sir  John  A.,  n.  35,  40, 
42. 

Mackenzie,  Hon.  Alexander,  n.  37, 
38-39. 

Mackenzie,  Wm.,  49. 

MacMurchy  and  Dennison,  n.  75; 
quoted,  84,  85. 

Main  trunk  line,  17,  20,  22. 

Mann,  D.,  49. 

Market  or  trade  competition,  156- 
61,  162,  202,  203. 

McLean,  S.  J.  (Professor,  later. 
Commissioner),  Report  on  Griev- 
ances, 82-83,  128,  129,  187. 

McPherson,  L.  G.,  170. 

Michigan  Central  Railway,  154. 

Military  considerations,  6,  11,  29, 
38. 

Milling-in-transit,  67,  193,  198, 
199,  211-12. 

Mills,  Commissioner,  165,  186. 

Montreal-Vancouver  rate,  63. 

Municipal  Loan  Act,  25. 

National     Transcontinental    Rail- 
way, 44-48,  50,  118. 
Navigation  Laws,  9. 
North  Shore  Railway,  43. 


Northern  Railway,  33. 
Northwest,  complaints,  81,  82. 
Northwest  Territories  Navigation 
and  Railway  Company,  n.  36. 

Ofiicial  classification,  61,  147. 
Oil  rates,  68. 

Ontario   Hydro-Electric    Commis- 
sion, 118. 
Ontario  &  Quebec  Railway,  43. 
Ottawa  River,  11,  67. 

Pacific  Railway,  34,  37/. 

Paish,  Sir  George,  50. 

Panama  Canal,  63,  142,  210,  217- 
18. 

Papineau,  L.  J.,  n.  77. 

Parliament,  108,  148,  209,  235. 

Physical  valuation,  103-10,  112-15, 
118,  119,  121. 

Pooling,  91. 

Precedents,  219,  223,  227-30. 

Presumption  of  reasonableness,  99, 
123,  128,  129,  205,  215,  229. 

Privy  Council.  See  Governor-in- 
Council. 

Provincial  Governments,  aid  to  Ca- 
nadian Northern  Railway  Sys- 
tem, 52. 

Public  policy,  rate  theory  and,  108, 
c.  VIII,  201-34. 

Railways:  development  confedera- 
tion provinces,  c.  ii,  17-33;  era 
of  transcontinentals,  c.  in,  34- 
51 ;  effect  on  waterway  routes,  19; 
first  in  Canada,  20;  minister  of, 
89;  railway  nets,  33,  54,  56,  58. 
Acts:  1851,  79;  1888,  79;  1903, 
83;  Amendment  of  1908,  84-86; 
other  amendments,  88;  1859,  89; 
Committee  of  the  Privy  Council, 
80,  82,  85,  94;  commissions  of  in- 
quiry, 1888,  79-81;  1895,  81; 
1899,  82-83; 1916,  50. 

Rebates,  174. 

Regina  &  Prince  Albert  line,  43. 

Rehearings,  233. 

Richelieu  River,  10. 

Rideau  Canal,  n.  6,  11-12,  53. 

Robinson,  Major,  survey,  21. 

Ross,  Hon.  John,  24. 

Routing,  n.  174. 


364 


INDEX 


Safety  and  protection,  provisions 
for,  86,  90. 

St.  Andrews  &  Quebec  Railway,  76. 

St.  Lawrence  &  Atlantic  Railway,  28. 

St.  Lawrence  and  Industry  Rail- 
way, 77. 

St.  Lawrence  River,  3,  7,  9/.,  19, 
25,  26,  27. 

St.  Ours  Canal,  11. 

St.  Paul,  Minneapolis  &  Sault  Ste. 
Marie  Railway,  43,  44. 

Sault  Ste.  Marie  Canal,  14. 

Simcoe,  Governor,  6. 

Smith,  A.  H.,  50. 

Smithers,  Alfred  W.,  48. 

Special  class  rates,  02. 

Standard  tarifiFs,  60. 

Statutory  control  of  railways,  73, 
75,  79-94. 

Stock-watering,  109. 

Stopovers.     See  Milling-in-transit. 

Sugar  rates,  67. 

Supreme  Court,  power  to  review, 
85;  appeals  to,  87,  178,  233,  234. 

Switching  to  sidings,  n.  190. 

Talbot,  Colonel,  6. 
Tariffs,  92,  93. 

Telegraph  tolls,  111-13,  184. 
Through  rates.    See  Joint  rates. 
Tolls,    and   traffic,   powers   of  the 
Board,  90-92. 


Ton-mile  rate,  130,  165. 
Town  tariffs,  61. 
Transcontinental  railways,    c.   in, 

34-51,  140,  142,  210,  217,  236. 
Trent  Affair,  30. 
Trout,  n.  20. 
Tupper,  Sir  Charles,  37,  n.  46. 

Valuation.  See  Physical  valuation. 
Value  of  the  commodity,  132-33, 

194-200. 
Volume  of  traffic,  127,  185-86,  215, 

237.  -See  Density. 

Wabash  Railway,  154. 

War  of  1812-14,  effect  on  routes,  6- 

Water  competition,  67,  138-54; 
self-regulative,  142;  effect  on 
powers  of  Board,  142-43, 147-48; 
benefits  of,  146;  must  be  efficient, 
150;  intermittent  character  rec- 
ognized, 151;  potential  water 
competition,  153;  discretion  of 
railways  in  meeting,  141-42,  214. 

Waterways,  c.  i,  3-16,  n.  54,  57, 
148. 

Welland  Canal,  8-9,  14,  19,  149. 

White  Pass  and  Yukon  Railway, 
101-04,  106-07,  109-11. 

Zones  system,  standard  tariffs,  60; 
for  telegraph  tolls,  184. 


CAMBRIDGE  .  MASSACHUSETTS 
U    .    S    .   A 


3  1158  00848  3637 


UC  SOUTHERN  REGIONAL  LIBRARY  FACILITY 


AA    001  249  190 


